I brought the head to a machinist where they put in new valves (stock size), Isky racing springs, new valve seals, and cut multi-angle valve seats. They also planed the surface.
I newly put on a 14mm spacer on the 32/36 carb, the originally was probably about 8 or 9mm or so. That should make for a longer plenum to draw more air.
So the car is running, but it's not pulling through the powerband. In fact, it just runs out of guts around 5k. It used to easily top out more than 1k more than that at over 6. It also feels sluggish earlier than this.
I had to take the Computronix distributor off to remove the intake while leaving the head on the second time I was changing a head gasket. After putting it back on, I took a timing light and checked btdc at 12° at idle, full advance at 34° (3200rpm) -- I have painted marks on the pulley to verify these, and check against the 0° long mark on the timing belt cover (which I know is good having verified TDC lines up with the mark). These are the right settings, but it runs rougher than if I put it much more advanced, but I know that's dangerous. I THINK I hear knocking when I left off the gas, but won't swear to it. I haven't changed jetting from what was there previously.
Given the history and symptoms what's the likely cause? Could it be lean and I need to up the jets? A multi angle grind is meant to breath much better and even add as much as 10hp to a 1.8L VW engine, from what I've read. Might it be an ignition timing issue?
I have confirmed valve timing multiple times -- it's spot on, even with the decked head. Crank is at TDC, aux shaft is 1 o'clock, intake pulley is 11 o'clock and exhaust at 1 o'clock, confirmed against the casting in the cam tower.
Thanks for any advice. The engine was great before, except it burned a tonne of oil on lift off (seals) and had a propensity to get coolant leaks in the head gasket. I'm hoping to get the engine back to at least as good as it was before.

Cheers,
phaetn