The gunk is not going to be your main problem. Seems like you could fix that by draining the tank (and clean out tank screen while you're down there). I wonder why it smoked with veggie. My car won't blow any fuel smoke when burning bio.

Adjust valves and check compression again, but this time go to a plumbing store and get a little adapter fitting that will allow you to connect a compressor or hand pump to your compression adapter and inject air into the cylinders--just a little at a time is all it takes--if you're using a compressor hook up a levered ball valve to control the flow. Then listen to where the air is coming from (with compression that low you'll here it coming from somewhere). If you hear it coming from intake or if you hold a tissue to the exhaust pipe and see it flutter, then you've got burned valves. If air is heard at the oil filler cap or dipstick (or timing cavity if you have the valve cover off), then it's related to the bottom end of engine i.e. rings, pistons, cylinder walls.

You could also squirt a teaspoon of oil into the cylinder and then check compression. There are differing opinions on this one, but I did it. If your numbers don't go up dramatically, then the problem is more than likely valves, since the oil will seal the rings to the cylinder walls. Good luck!