"If I took the carb apart and cleaned it good think it would be fixed or is it a recurring problem?" Yes, maybe and yes. Putting in a new float needle may stop it - - - for a while. You see, this has happened every since there were small engines but there was a "weep" hole in the bottom of the carb and if the float needle leaked, the gas dripped out, you saw, smelled it and did something about it. Then, your always watchful and caring EPA decided that wasn't nice and made the mfg. do away with the weep hole so now the gas runs into the cylinder, on into the oil and often ruins the engine. I guess there is less pollution in making a new engine than a few drops of gasoline. Walt Conner

This might not be coming from the oil filler cap per se, even though it probably is. I would personally try to confirm or eliminate a leaky cap by stuffing a paper towel into the space between the cap and the flywheel cover to produce a "foot print" of where the oil is actually coming from. The point here is that the oil mist may be coming from a different source and being blown out through the opening in the flywheel cover by the draft from the flywheel fan. Take the cap off. Clean the tube and cap as well as you can to get rid of oil that may already be there. Next, wrap a piece of clean paper towel around the tube, stuffing a good portion of the towel down below the hole in the flywheel cover. Fold the remainder of the paper towel out onto the top surface of the flywheel cover and reseat the cap on the tube, taking care not to allow any of the towel to get meshed into the cap "threads". Run the engine just a few minutes and then take the cap off, but leave the paper towel in place.. If you see fresh oil visible on the paper towel where the cap itself was, then your cap is not sealing properly, perhaps a damaged, out of place, or missing o-ring or gasket may be the cause. If the part of the towel immediately adjacent to the cap is clean, carefully remove the towel, watching for signs of oil spatter as you withdraw it. If the oil is being carried by the fan draft, the towel will show signs of oil on the towel below the flywheel cover. It's also possible that the tube itself has a crack or fissure in it. If it appears that the cap is leaking but there are no signs of a defect in the cap, inspect the tube to see if the tube has split or cracked. I believe the tube is an injection molded plastic component. As such, it will feature a "parting line" where the mold halves fitted together during manufacture of the tube. The parting line would be my prime suspect of how a tube might fail by splitting open. This post was edited by mownie on Mon, Jun 30, 14 at 9:27

Agree that "milky" looking oil usually means water has emulsified with the oil. Typical carb screw adjustments are about 1-1/2 turns out, but you have to fine tune the high speed screw with the engine under load.(often just a "bit" more out) Idle screw may vary more on an old carb due to vacuum leaks from the throttle shaft etc. Some carbs "interact" between the 2 screws more than others. Go back & forth between them a time or 2, until you feel they are at the best setting. IF the screws have been JAMMED into their seats, it can be near impossible to get them right. Are there any PN's etc. on the carb? I can't remember is this engine is a single, opposed twin or ???

Oh, good idea! I just did a visual of the oil fill tube without taking it off. I cannot get fill tube off until I get the engine cover off after I retrofit/cut the metal frame...plan on doing this retrofit this coming weekend. In any case for now, it does not appear there is any cracks from what I could see/feel nor did it look like there were any oil leaks in the fill tube area. See attached pic. Since I do exactly know how it works....Are you saying that if there is a crack, this would cause a loss in crankcase vacuum, and this lost of vacuum could in turn cause oil to come out around the fuel pump? Thanks for the idea and I will get to do a full inspection of the fill tube this weekend.