@ Hondanutrider, thanks for that explanation. I should have included that in my statement.
@ Ernest T, that engine looks a little rusty. If I was at home right now, then I'd offer some parts of my spare 350F engine. I won't have access to that engine until I'm back in the State in January though. Let me know if you have trouble finding replacement parts for the rusty bits. It looks like the starter clutch and the kickstart assembly are coated in rust. You might be able to clean them with an oily rag (that rust wipes off easily sometime. I would also flush all the oil passages to make sure you don't have rust/crud sitting in them that could go to the crank bearings.
You won't feel much motion of the adjuster when you push down through the blanking plug hole. You will feel a pulsing with the engine at idle, and it is not likely that you will be able to push hard enough to make that pulsing go away. If your horseshoe is eaten up at all, then you can try dressing it with a finishing file to remove burrs (I did that once out of desperation and it worked). As long as that horseshoe can move, it will do its job. I realize your engine isn't working right now, so you'll have to wait until you have it back together to understand what I'm talking about. By the way, while you have it apart, do/check the following:
1) replace all the bottom end gaskets. You can buy kits for abotu $35 and there is nothing work than a lower end oil leak after you have reassembled, reinstalled, filled with fresh oil and started the bike.
2) replace your valve guide seals
3) check if first gear is loose on the shaft. If it is, then check back in and someone on here will tell you how to repair it. It should be a cheap and easy repair and will only require having a new bushing turned to replace the stock bushing that is worn.
Good luck,
Camelman