I read through the entire thread but have lost track of what you have done.
#1 when you had the #1 @ TDC did you check/Mark the balancer?
#2 either something is wrong with your timing light or there is an ignition problem. The light SHOULD NOT skip like that try another light - if the same there is definatly an ignition problem.
3# do you have the vacuum advance hooked up to the ported vacuum on the side of the car? If so get rid of it for now.
#4 Make sure your ignition Box has an EXCELENT ground - the box case should be grounded - clean off the paint behind one of the bolts.
#5 if you think it could be a mechanical distributor problem you can drill some holes in the top of the cap @ #1 terminal - big ones - then you use your timing light to watch the position of the ignition rotor - this assumes you get a nice steady flash from the timing light.
