Small Engine Troubleshooting Problems? Ask a Mechanic Now.
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What did you set the valve clearances at when you put it back together? Did you torque the head bolts back into place when you put it back together?
Did the camshaft come out when you removed the pan to replace the gasket there?
Will the engine run up to full rpm with the belt removed? It sounds like you may not be getting fuel through the carburetor properly in order to keep the engine running at higher rpm.
I doubt that there is a governor problem since it will run up to full rpm with no load. At this point I would question the compression on the second cylinder, you may be running on just the one cylinder and if so that would explain the power loss. If you want to explore the governor settings let me know and I will walk you through setting it.