Hello JoeKarpowski,
Minor surging at idle is a sign of a dirty carburetor internally. The carburetor would need to be removed and properly cleaned. If you want to attempt this, I can only recommend watching some videos of people who work on small engine equipment for a living.
Sources: Teryl Fixes All (Goofy guy, but knows his stuff). James Condon generator repair is the most thorough one I have noticed when it comes to carburetor cleaning. Donyboy73 who is very good with most small engine concerns.
Too many people want to play with adjustments such as the governor setting. The governor has nothing to do with a surging issue. The governor is only there to control the engine top running speed so it will not blow itself apart mechanically.
A puff of oil smoke when starting is usually the first sign of worn intake valve seals. If it only happens after sitting for a while, I will call that normal, especially if it has high hours. If it happens every time you start, then it's time to replace the valve seals. The quality and type of oil can also contribute to an initial startup "puff" of smoke.
My own preference is to use only conventional 10W30 or 10W40 in any air-cooled 4-stroke small engine.
We would have to see a picture of your carburetor to give you a truly accurate description or a location of the welch plugs. The product information off of the engine label is important for a correct data match. Toro did not build the engine, just the chassis.