That guapo in the trans pan is not a real problem ben. I've seen far, far worse on units badly abused and neglected. What you see there is kinda "normal" actually. The filter did it's job! Just change it out for a new one.
To redneck the front band adjustment...tighten it with a 4" ratchet about as tight as ya can get it with one wrist (it's a bitch to access anyway). Then back the screw out exactly three turns and lock it down.
When ya did the cam/lifter break-in, if the trans was in park, then oil did not actually circulate in the trans to any extent, the hydraulic system "charges" only when in gear or in neutral unless a shift kit has been installed previously.
I'm a bit confused...has the engine oil pump failed??? That is near impossible unless something jammed the gear and twisted the shaft.
With any of the common electronic distributor conversion, ya should run only a plug gap of no more than 0.035". With a capacitive discharge box added (msd or mallory), the plug gap should be no more than 0.045" or it's possible for a conventional plug side electrode to actually break off and the cylinder eat it. What you have installed right now will not fire a plug gap of over 0.035" on a regular basis under constant load, so you end up with random misfire above approximately 1500rpm but it's "scatter firing" and ya May not actually feel/hear that unless ya got the system onna scope. It's actually kinda like hitting the governor onna governed engine system like your excavator.
The prestolite electronic distributor and the delco with points do not control how much voltage/spark energy is needed/produced to ionize the plug gap, the coil does. And in actuality, that pertronix coil is hardly any "hotter" than a stock coil, don't believe the marketing bullshit they spin. And any "inductive" system only produces the exact amount of spark energy (measured in millijoules) that the plug needs each time the piston comes up on compression stroke, so a "hot coil" is really redundant.
The only way to achieve a constant high "spark energy" across the plug gap is to use a cd system that controls the coil with a primary input to the companion coil of a nominal 450vdc instead of only b+!