Grrrr...
bgsengine, I have replaced numerous gaskets numerous times.

So far, this engine has eaten a carb kit(STENS), a complete engine gasket kit(PRIMELINE/NAPA Small Engine Line), an additional head gasket from another complete engine gasket kit, an additional intake pipe O-ring, 3 or 4 breather gaskets, 4 intake pipe mounting gaskets, and 4 air cleaner mounting gaskets, all Rotary.
Here is my procedure for installing the intake pipe: Ensure mounting surface on the pipe is clean, ensure mounting surface on the block is clean with no gasket residue remaining. Install gasket in proper orientation to intake pipe, securing with screws. Mount intake pipe to block, leaving screws slightly loose. Install carb mounting/governor/throttle bracket to block, tighten. Lightly lube intake pipe O-ring with silicone grease, install on intake pipe. Mount carburetor to bracket, tighten bolts. Now, tighten intake pipe to block mounting screws to proper torque. In my mind, this procedure aligns the intake pipe to the carburetor, as there is a good amount of play in the holes of the intake pipe for the screws.
Today, I swapped in the governor spring (699056) from an identical B&S Quantum on another Murray self-propelled pushmower (12H882 2312-E1 98011057). Initially, I had hope, as the engine didn't seem to surge. But, within a few seconds, it fell into the familiar surging. However, the frequency of the surging seemed a little slower. Again, holding the throttle lever on the carb caused the engine to run smooth. I removed the carb and entire governor linkage. Under 12X magnification, I saw no burrs, no out of round places, nothing. I saw some wear marks. For giggles, I pulled the governor rod link from the other engine for comparison. The two rods were identical in every way. The same bends, the same wear marks. Just because, I cleaned the wear marks on the original rod on my wire wheel.
I reassembled all, installing the original governor spring. Restarted the engine, same old same old. This time, the frequency of the surging was a little faster. I believe from the original governor spring.
I have come in to eat dinner now and regroup.
mikenj, that also confused me. Way back when I started working on this engine, if I held the throttle lever, the engine would slowly die. Now, it just runs. All I can figure is the lapping of the valves helped that. I have not yet performed a compression test, as I prefer to do a leak down. However, I will try anything at this point.

According to the owner, this pushmower doesn't have all that much use to it. He bought it new, and used it sporadically, then took it to his beach house. It was again used sporadically, then left for a couple of a years under a tarp.
I do all my testing now with the various shrouds and air filters in place, unless conducting a specific test for something. Though this engine doesn't have an air vane governor, I have learned my lesson dealing with the 9D902/10A902 engines. I tested one with the blower housing off, and the engine raced away. No shroud equals no air flow equals no pressure against the vane to close the throttle. Oops.
Thanks!
Seth K. Pyle
Nothing is sailor-proof...