I would start with a compression check. You have to find out where to start. Or establish some sort of baseline before going onward in my opinion. You want to work your way upward systematically. There is no sense in attempting to repair a house on top of a bad foundation.

Without even knowing what the engines general compression is like. Any another method of trying to move forward could be very frustrating.The harbour freight compression gauge model is about 25.00 unless you can borrow one.

I am not suggesting the engines compression is the issue. Until you test it though you just do not know. Starting by establishing a baseline is probably the cheapest method. Otherwise you will just spend money usually not knowing what results to expect. Could waste money in fact. I really do not know how to express this properly.

Certainly you could do two free tests first in my opinion. Substitute the fuel supply to the injection pump as suggested in a prior post is basically free. Plus close the return line from the injection pump off temporarily if the substitute fuel supply did not change anything.

Letting off the throttle and all kinds of air showing in the fuel line indicates there might be some difficulty there. I do not think that is normal.

There is a chance you could also have multipal problems. That is why the systematic approach is both cheaper and best if the two free tests do not indicate anything substantial.

You already state there seems to be some issue with #3 and #5 cylinders. I could list probably half a dozen causes of this apparent difference. Without a compression check after the two prior free tests it is just guesswork. Too early yet to have things like the injectors pulled and checked as well. You have no firm indication they are bad yet.

If the engine has been run on alternative fuels to your knowledge make sure to mention that as well. I base a lot of my assumptions on many examples of this vintage engine type having not recieved proper maintenance over the years. Many things like the tight valves you found. As long as the engines ran in some fashion the owners did not care.

Even diesels have sub systems that should be checked and maintained from time to time. If your compression proves to be in a reasonable range the other things can be chased down in a systematic way. This is the cheapest and fastest method by the way in my opinion.

All current indications are not bad either. You state the engine starts and catches fast. That is a positive thing.