I've never had or even seen a PowerTrac, but as a mechanical engineer with a day job of dyno testing internal combustion engines, I will add my 2 cents.
That is not normal. Your exhaust gas temperatures are clearly way too hot, and that looks downright dangerous.
Sure, on a dyno torture test we can also get entire exhaust manifolds, turbos, and exhaust pipes glowing bright red here at work. But thats at sustained peak power conditions on highly boosted engines. A naturally aspirated Kohler 2-cylinder loafing around should not be anywhere near that hot. The only time I would call that acceptable is after a full hour of dragging a plow through soil on a hot summer day, or similar punishing work.
Multiple things can cause excessively hot exhaust gas temperatures. But ignition timing is an obvious suspect, valve timing another. Exhaust restriction would be also be one, but looks like you already answered that question. I know it would be obnoxiously loud, but did you try running with no muffler at all, just to see?