Yes, it's OK to run the engine without the clutch. But it's NOT OK to hand crank it with it timed BTDC. To change that you need to adjust the timing disc with the 2 bolts. All that moving the lever does is changes when the points open. It does not change when the impulse clicks. I would not go by the marks on the flywheel so much unless I verified it but taking the spark plug out and feel in with a wire or something (I use my plier handle) to find true TDC. So.. Your clutch housing noise is gone when the clutch is out of the tractor? Something must have been rubbing. How is you clutch release bearing? (the bearing that pushes on the clutch fingers when you mash on the foot pedal)
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Today's Featured Article - Oil Bath Air Filters - by Chris Pratt. Some of us grew up thinking that an air filter was a paper thing that allowed air to pass while trapping dirt particles of a particles of a certain size. What a surprise to open up your first old tractor's air filter case and find a can that appears to be filled with the scrap metal swept from around a machine shop metal lathe. To top that off, you have a cup with oil in it ("why would you want to lubricate your carburetor?"). On closer examination (and some reading in a AC D-14 service manual), I found out that this is a pretty ingenious method of cleaning the air in the tractor's intake tract.
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