David,
That's one of the easiest things to miss! That 3/16" was likely just enough to keep the very back return port in the MC covered, trapping fluid in the lines. Glad you found the problem and that Dustin has brakes, and won't be keeping the local parts house rich replacing pads monthly. Another benefit - Dustin learned to not simply give up and take the problem to somebody else, but to keep at it and not give up. I predict that this brake lesson is one that he will be telling his kids & grand kids about one day, "Yeah, I remember once when my Dad and me were chasing this problem on an El Camino....." Good job, Dad!!