318 rpm drops to 400 in gear WHY???

I think Crackedback has a good point that at 1200 rpm at idle the centrifugal advance is probably coming in and when you drop it in gear the rpm's go down so the centrifugal advance goes away and the timing drops. You can verify that by checking the timing with it in gear idling making sure to disconnect the vacuum advance. I doubt seriously that it would even start if the timing is truly 32 degrees before initial. Mine kicks back on the starter at 22 degrees before. It's probably more like 12 degrees initial and by the time it's idling at 1200 rpm it's advanced to 32 degrees. If this is the case you'll have to install a heavier spring on one side of the centrifugal advance to slow the centrifugal advance coming in. It shouldn't come in before 1500 rpm.

Also 8 INCHES of vacuum is decent for that cam in a 318. I say INCHES because vacuum is measured in inches, not lbs.