Another mission accomplished! After draining and exchanging the fuel again, resetting the fuel filter and bowl twice and the subsequent bleeding, I decided to check out the top end of the motor. When I pulled the valve cover, the trouble was immediately obvious. An intake valve rocker had come off the rocker shaft, and the pushrod had fallen into the block.
Naturally, the inoperable valve kept the cylinder from burning the fuel until it was expelled into the air. After truing the slightly bent pushrod and reassembling the pushrod and rocker, I checked the valve clearances, re-torqued everything and it fired right up! Minimal smoke at startup, and it runs normally. It seems to be a bit down on power, and doesn't really want to lug the way I would expect a 2 cylinder diesel to do, but it isn't running poorly, and it doesn't have the smudge pot effect going on anymore.
Thank you to all who have helped me with this issue. I'm going to run it awhile and get it nice and hot working around the yard, then re-check all the valves and torque specs. The assistance is really appreciated. I've noticed that the turf tires have extremely poor traction trying to pull the disk. I'm going to have to work on correcting that with different tires.