Presumably, your engine was turned to TDC on some cylinder in the first picture. Otherwise it would be a pretty meaningless picture. If so, your governor gear was not timed when it was installed. That is probably the root of your trouble. At TDC, the slots for the distributor drive should be at about 2-8 o'clock, not 5-11 like yours. With a magneto, you would absolutely have to pull the governor and reset the timing. With battery ignition, you can get away with it.
Set your engine at cylinder 1 TDC (if it isn't already). Take your distributor and rotate slowly clockwise until the rotor is pointing near the cap position for cylinder 1 and feel for the increased resistance as the cam starts to open the points. Pull the input shaft far enough out of the distributor to disengage the drive, rotate to the orientation that will engage the drive slots of the governor and push back in place. Do the distributor thing again to verify the position. Install the distributor and static time by the book.
Of you can time the governor and probably won't need to mess with the distributor.
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