Sorry but i didnt read the entire thread, but it seems like you've got fuel and spark, correct?
If the oil took 2 quarts to get it to just touch the stick then it's still almost a quart low. Are you screwing the stick in or just setting it in.
As long as the unit has spark, the stator (pulse generator) is not the issue. To correct a reply i did see, the stator is in oil and i've never heard of a "swelled" stator. I dont think i've ever replaced a 350 Rancher stator.
Most generally if a Rancher has been run low on oil, the cylinder and piston start melting together. Especially if the unit has been run down the road at a high rate of speed. They also were bad for dropping valve seats. I've never seen a cam go bad on a 350 either and I've had a guy run one until it broke the frame in half and the cylinder sleeve came loose from the cylinder.
I'd bet the top end is destroyed due to low oil, and the crank is most likely trashed as well, since the small end of the rod has lost oil pressure as well and tried to seize on the wrist pin. Have you pulled the oil filter to see if there is any metal in there?
Also dont waste money on ebay trash rebuld kits, they wont stay together long enough to burn the oil out of the cylinder.