Great price for a great tractor...... That is a pretty peculiar problem you are having with it......
If I may throw out an idea as this was something I discovered recently on a different engine but it had the same symptoms...... Check the valve to tappet clearance if you have not done so already. The issue that I was having is that once the engine ran for a few minutes the valve clearance got so tight that the intake valve was not closing all the way. I pulled the valve and ground the end of the stem to get the right clearance and now it runs great.
Not sure why the valve clearance was so tight to begin with but had a theory that the valve seat may not have been seated in the block properly from the factory and the repeated heating and cooling cycles along with valve action caused it to push further into position and this was causing the intake valve to not close all the way once the engine was warm. It was a Kawasaki engine, but it was also a flathead.
IMHO, if that engine is truly a 500hr engine I would explore all avenues within financial and mechanical means to make it run properly. Once you factor in the cost of the Predator engine, spacers, adaptors, modifying the exhaust, the wiring, etc, etc, you are well on your way to having your Onan fixed and running. One other thing to think about is that remanufactured Onan engines are available for $1500 with core. Might seem like a lot but you are saving a lot in the process. It is a drop in and go engine....... no muss, no fuss.
Jared