We can keep working on this as long as you like.
I just want to recap first so we can make sure that we're going in a reasonable direction.
The engine won't start on ether with the air filter removed. There is a blue spark at the plug. The flywheel key is in place and the magneto is closely gapped. This is an older, 1986, L-head engine. It was running prior to the current problem and didn't seem to have any catastrophic failure.
75 psi is a little low for this engine, so what I would do is pull the head and give it a good cleaning. Rotate the flywheel so that both valves are closed and the piston is at the top. You may have a valve that's not sealing fully. This is normal maintenance for an L-head engine anyway so even if it doesn't fix things, it should be done every hundred or so hours for an occasional use machine. It's pretty easy, just remove the bolts, use some carb cleaner and whatever you can to scrape the carbon off. If you can find a product called Valve-Tect, that does very well at dissolving carbon but carb cleaner works pretty well.
It's best to replace the head gasket, but I'll admit that I've done literally hundreds and reused the gasket if it looked good. 165 INCH pounds is what the head bolts should be torqued to. The pattern to torque them is usually in an X then in + but a lot of people just start in the middle and work outwards.
Other things to do would be to give the muffler the once-over and see that it's clear and when you have the head off, rotate the engine over a few times and see that the oil is being wiped from the cylinder and the valves are fully opening and closing.
Try these things and let me know what you get.