John,
Did you rebuild the engine yourself? If so, did you make sure that the timing tab was set at exactly TDC? I've measured the timing on my engine, and came up with a nice running engine at 4.5* ATDC. However, after doing that, I realized my timing tab on the front cover was NOT adjusted to TDC when I assembled the engine. In fact, I used another front cover off another engine, so I know it's probably not right.
Since the magnetic pickup probe is placed in the holder on the timing tab, the timing tab has to be in the proper place in order for the meter to take proper readings. As you are aware, the timing tab has slotted holes in it, allowing for adjustment.
When assembling the engine, the timing tab should be bolted on to the front cover before the heads are bolted on, and then a dial indicator is placed on the piston. The crank is rotated to find exact TDC on piston #1, and then the timing tab is adjusted to show TDC in relation to the balancer.
After saying all this, I have found, in my experience, that the timing is best set by ear and by the EGT and boost guages. The meters don't really help.
Casey
p.s....is this the same engine that the gear set made noise on? You swapped the gear sets and the noise went away? I'm still not sure what to do about mine, but it's so noisy it drowns out the diesel rattle at warm idle. But man, it sure does run good!
1995 K1500 Tahoe 2 door, 6.5LTD, 4L80E, NP241, 3.42's, 285/75R16 BFG K02's; 1997 506 block; Kennedy OPS harness, gauges, Quick Heat plugs, and TD-Max chip; Dtech FSD on FSD Cooler; vacuum pump deleted, HX35 turbo, Turbo Master, 3.5" Kennedy exhaust, F code intake; dual t/stats, HO water pump, Champion radiator; Racor fuel filter