Exhaust Valve Issues, Can't build pressure Options

[FL000]

This is for my gen 1 small block chevy engine, but I am going out on a limb that it could happen with any 4 stroke engine. I am totally perplexed and am hoping someone can help me identify the issue before I start tearing things apart again. Please help!

Long story short when doing a compression check I can't build proper pressure with the exhaust rocker arm installed. When the rocker is set for proper valve lash I can't get more than 35 psi out of it (150 is expected from other cylinders). As I slowly loosen the rocker arm I start to build pressure but can't get over 120 psi until the rocker arm stops putting any pressure on the valve. Once there is no more pressure on the valve (zero valve motion) I get 150 psi in short order.

Now for the long story. Just got my car on the road and was shaking it down to look for problems. The engine was built a number of years ago, and I have less than 10 hours on it. The wasn't super confident in the calibration of the chevy temp sender and the Porsche temp gauge, and I think I thought I got it hot on one of my drives. Still ran fine but temp creeped rather high into the red zone.

I noticed my coolant was a nasty brown color, and a couple flushes didn't clear it up noticeably. I thought I may had blown a head gasket so I did a compression test. 7 of the 8 cylinders were ~150 psi, and cylinder #7 (back left) was 35 (IMG:style_emoticons/default/sad.gif) . I was convinced I overheated it and crushed the gasket creating the leak, so I took the head off to replace the head gasket. I was surprised that my local machine shop said I probably didn't warp the cast iron head so I didn't bring it to them to check it out. Possibly regretting that now.

I cleaned everything up and put the heads and manifold back on. Then I decided to do another compression test and low and behold cylinder #7 still only produced 35 psi with the valve lash set (IMG:style_emoticons/default/WTF.gif) . Freaking out a little I decided to do some trouble shooting which is how I discovered the behavior in the second paragraph.

I will do whatever it takes to fix this, I just want to focus my efforts and leave the engine in the car if possible. Visually things look fine - valve springs, pushrod, lifter, rocker, hell even the valves looked fine when I inspected them.

So this is where I am at and if you have any ideas of what may be causing this I would be grateful.

Josh