Sounds like you did a pretty good job on the rebuild - in my experience the timing on these small gas engines is not very tolerant, if they key is not showing any type of sheering it's in time - " unless you missed the cam gear tooth " mis matched with the crank but I seriously doubt it would run at all let alone as good as you describe. As to the exhaust being red - it probably always was but now you're paying it more attention. The surging at idle is not too uncommon I have one that does it all the time but goes away under load.