Only runs 40 Degrees advanced

You say with the timing up to 38-40 it runs real good. Ok, does it make power? Idle in gear? In other words if the 38-40 is just a reference and not a specific number is it good? And you did change or removed and inspected the intermediate shaft and gear teeth?
Maybe a given, but did you rotate the chain and sprockets more than once and check the alignment of the dots each time?