1. You should have side to side play (horizontal), but none vertical on the rod. No up/down play if you hold down on the crank with your other hand. You should have NO crank play vertically or horizontally.
2. An engine can partially seize and not lock all the way up solid if you catch it fast enough. Early Bultaco Astro owners know this feeling well
. You get pretty sensitive to how this feels....sort of like running with a back brake on. Is that your feel?
3. That choke issue could introduce air into the mixture and will increase with venturi effect considering where it is. Question is, can you get another one?
4. If the exhaust were your only problem then the bike would run badly hot or cold.
5. The problem is not the needle. Put in pos 3. Check all your jet #s to make sure they are to factory spec. That bike ran great in 1965 and probably with those jets. Are they clean? Can you see daylight through them?They tell you not to do this but flip a wire brush over and run the jets through with a bristle of the brush. You may get crud out of them.
6. The top end removal is the only way to tell if it is seizing. Light emery cloth on any scuff marks, re-oil the bore. Check ring end gap or re-ring and put it back together again.