So much for the " it came out of a running, driving car. Drop it in and go."

Welll, everybody's idea of "rebuilt" can be a little different. They might have thrown new bearings and rings in it and maybe run a hone through it and called it good; but not taking that ridge out of it is probably what beat those top rings to death. Who knows if they bothered to put valve seals in it. Those two things would explain your carbon issues. Luckily you can save it. Take your time and do a good job of it. Good luck!