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I posted a thread back on May 3,2010 with the same subject. The governor was holding the throttle wide open with the PTO engaged, yet the engine was unable to build rpms. I had rebuilt the carburetor, replaced the fuel line and filter, tested the fuel pump, yet no improvement.
I checked the compression and the valve clearance. Everything seemed fine. What I didn't consider is that neither of these checks verify that your valves are opening properly. In my case, the intake valve cam lobe was wore down .225 which allowed the valve to open about 1/16". The exhaust valve cam lobe was still perfect. Apparently, the intake cam lobe wasn't heat treated properly.
I rebuilt my hydrostatic drive recently. It's a BDU-10S and a good resource for rebuilding it can be found by searching under (BDU-10/21 Hydrostatic Transmissions Service and Repair Manual). Also, I found that Sears has a model that uses the BDU-10S. The only part that I ordered from them that didn't fit my Yamaha was the gasket. Apparently, their aluminum housing is a little different near where the filter is.
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