Backfire into Carb - Need Help Troubleshooting!

Hi all! Some local mechanics overhauled our 110 Defender 2.5L Petrol engine back in April; it only has about 1000 miles on it since the overhaul. I've never been happy with its performance, with tough starts, low power, and terrible mileage - and suspected something was amiss (pun intended) with the timing. I took a look at detailed look at the distributor for the first time since the overhaul, and the skew gear that drives the distributor was off about one tooth (too far counterclockwise) from the specification in the repair manual. So I set it per specs - with a 20 degree offset in the counterclockwise direction. I advanced the timing about 6 degrees, and it ran beautifully until it got warm...then I started having backfire into the carb - really bubbly, along with an erratic idle. There was an occasional backfire before, but nothing like this!

Troubleshooting so far:
- Swept timing between 0 degrees TDC and about 14 degrees BTDC. Engine RPM really goes up and smooths out at 14 degrees BTDC, didn't notice any knocking (althought it's still a bit on the noisy side at 0 TDC, even after I checked valve clearance). Engine dies at 0 TDC, and runs pretty rough until about 6 BTDC. "Lumpy" backfire present even when I backed off on the advance.
- Tried tweaking mixture at carb (Weber 32/34 DMTL) - response seemed a bit erratic. It would not die when I screwed it in all the way (rich), but ran best on the lean side, about 2 turns out, with no change if I unscrewed further. When the engine was running great (before completely warm and the backfire appeared), turning the choke on made it sputter as would be expected. But after warm, choke seemed to help a bit, as did taking off the line to the brake boost (opening up manifold intake). Once again, any adjustment to mixture had very erratic response. What helped one moment would work against it the next, including adding/removing air.
- Checked/cleaned spark plugs. All but one were fouled with oily residue. One looked fairly normal (brownish carbon deposits). The corresponding cylinders also had oily buildup (as best as I could tell looking through spark plug hole). After I cleaned the plugs and ran the engine for a while, they all had black carbon deposits. This is really throwing me...the backfire is usually from being too lean (right?), but the plugs are telling me the mix is too rich.
- Valve clearances were a bit off, some too tight, one way too loose. Now adjusted. Double-checked after running a while.
- Distributor points, condenser, grounding all good. Coil appears to be working fine.
- Dismantled & cleaned carburetor. No clogged jets, accelerator pump working great.
- Checked everywhere for vacuum/intake leaks. Brake booster appears to have a leak (will replace later), but when I stopped the hose to the manifold, there was no change, so don't think it's affecting engine much. I took the rocker cover on/off and didn't replace the gasket, but it's cork,only a few months old, and in great shape, so doubt there's any air leaking there. Didn't hear any hissing.
-- The only thing I changed in the system is replace a hose that was in bad shape from the rocker cover breather to the carb (see picture in next post). I'm not sure what it did, but when I removed the hose input to the carb, RPM went way up.

My thoughts:
- I read oily deposits can be common just after an overhaul. We've only driven about 400 miles at higher RPMs (still <80 KPH), the rest has been slower driving in traffic or off tarmac. Still, can deposits on cylinders/valves be causing either an ignition source outside of the air/fuel mix, or affecting valve closure? This seems to make the most sense to me since the engine runs great (including smooth acceleration/deceleration) until it warms up, about 1-2 minutes after I start it (no choke).
-- If this is the case, why would it show up the worst after I adjusted timing?
-- How risky is it to try to burn it off with higher RPMs on a good trip...or am I risking a burnt valve?
- We live at fairly high elevation, about 3500 meters. As far as I know, the carb jets are still stock - if I could make sense of whether I'm running too rich or too lean...there's a chance I might need to reduce the jet size to adjust for elevation. It also helps explain why the engine is very happy with higher advance. But I'm nervous about going beyond 14 BTDC until I figure out the cause of the backfire - I don't want to risk a hot valve!
- Should I put the skew gear back where it was? Maybe something was off on the timing belt that they compensated for? These guys didn't consult the tech manual at all, so who knows what could be off spec...

Thanks in advance for any help...I've hit a total wall in my troubleshooting.

Here's the one hose I changed out. It comes from the rocker breather tee - number 12 in the pic below.


And went to the carburetor just above the numerals 24 in the pic below, to the left of the diaphragm - it unfortunately doesn't have a label. Not sure what it's for, but RPMs went up drastically when I pulled off the hose. It's the only thing I changed before I started the engine up after adjusting the skew gear...the old hose was cracked and poorly sealing. Perhaps it was leaking, and when I replaced it with an airtight hose it affected something in the carb negatively?

While we're at it, does anyone know what the other hose attachment is about the middle of the same side? The hose attached to it was siliconed shut on the other end...is it a bowl overflow?