For lack of better description, but from the shiny points, I am very strongly leaning towards the flywheel spun on the crankshaft. Maybe the key was missing, or it sheared, or something. I believe the carburetor is doing exactly what it is supposed to do. WIth the adjustments way on the rich side, it is pumping fuel out the exhaust. Making little power at the same time... The intake and exhaust timing is set by the piston....
Remove the nut holding the flywheel on, put a screwdriver on opposite sides of the flywheel with a little tension. DO NOT BUGGER THE THEADS! but a square tap with a hammer (put the nut on flush with end of shaft) will usually release the flywheel.
There is a small key that indexes the flywheel to the shaft, if that was in the WRONG place, you have your answer.