I had the head rebuilt (they changed 28 out of the 30 valves).
New gaskets, bolts, etc.
New timing belt etc done, correct timing (engine turned over 10 times, checked and verified).

Before installing the engine, thought I run a leak down (just to be sure):
TERRIBLE, values between 40-75% leak.

Took cams out again, and did a leak down. All cylinders improved significantly, some to 5% leak.

Is it possible that the hydraulic lifters 'lock up' (in fully extended position), causing the valve NOT to close fully?

If that is NOT a possible explanation, only seems to leave they did not grind the valves to the correct height?

 

This might be a dumb question given the fact that it seems like you're pretty experienced given the nature of the job that you're finishing up, but when conducting the leak down test are you certain that the cylinder you are testing is at top dead center? I ask because it may indicate a timing issue versus an issue with the seating of the valves and the lifters themselves.

 

When rotating the crank, you simply watch the gauge until you reached the 'best' value (which is the point when all valves of the the cylinder you are testing are fully closed).

You can even run the leak down test with cams and timing gear removed. Obviously, in this position all valves are closed (no cams to push them open).

Or even on a 'bench': heads pressed down on perfectly flat surface (maybe with a softer gasket material).

Is it perceivable that the piston rings suffered when the valves got bent? Cylinder walls are in very good condition, no marks/scratches, etc.

 

Sticky lifters: Took the cams out again. Some lifters (mostly the large exhaust ones) were not 'squishy' or 'springy' as the others. Pulled them out, took them apart. Soaked, cleaned and assembled. No 'springy' again.
Cams assembled: leak down still over 40%!

Leak down with cams removed (valves closed), and nothing (valves stem length ground too long for example) preventing them from closing: still measuring 30% on most cylinders, only one or 2 with numbers under 20% leak.

Repeated test with oil in spark plug (normal test to see if leak is from valves or piston rings, since the oil helps to seal the piston rings): similar values, indicating the leak is in the heads, not piston rings.

Will call the shop who performed the heads rebuild now. Out of ideas. Only thing left: poorly done valve job? Or cylinder head gasket (new, metal head gasket with new bolts, torqued to spec in correct sequence, plus 2x 90 degree turn).

 

Well, I took the lifters out, some where 'springy', others not.
Took the lifters apart, soaked and cleaned, assembled.

Still, terrible leak down values on the these brand new heads.
Even with cams removed (and consequently valve fully closed), still 30% leak AT BEST (up to 70% worst).

Finally decided it is either the valves, or head gasket.

Removed all the stuff (including intake and exhast manifold).
Before taking the heads off, poured some mystery oil in and did the leak test again:

https://www.dropbox.com/s/i94jd922ydnwhye/MVI_6763.AVI

What you see is a 30% leak, and Yellowstone like bubbling out of the intake valves!!!

Conclusion: **** poor valve job.
Heads are back to shop that did the job.

 

The leak down test should have pointed you in the right direction right off the bat. You can basically listen to where the air is hissing from and determine the source of your loss of compression in that manner. From the sound of it, it looks like you have narrowed down your loss of compression through enough testing.

Do you plan on doing the head gasket anyway given how far you have the engine taken apart already? I would think this would be a good time to knock this job out rather than button everything back up and possibly have to do that again in another year and a half.

 

You can only narrow down the 'source' with the manifolds off.
The leakdown was more an afterthought before installing the engine. After previous head rebuilds, I just put everything back together, and ran engine.

That would have been a double whammy here.

Curious now what was done wrong. Won't know before Monday.

 

Here is a better video 'old faithful' steaming and bubbling:

https://www.dropbox.com/s/3uofiyb23jhwqiq/MVI_6762.AVI