Well the motor is back together again. I took it over to a local Kawi expert (mechanic) and showed it to him. He agreed that the decomp was not working, and that the cams looked too far over to the chain side of the motor. I left it with him for the day, he could not see any reason for the miss alignment. The motor turned over smoothly, the cams were timed correctly, the valves were shimmed correctly.
Because we couldn't determine the cause of the problem, he removed the cams and inspected all of the parts, the cams, the bearings, everything. Everything is in spec and not damaged in any way.
He reassembled the top end of the motor, thinking he would see something out of wack as he put it back together. He completely reassembled top end and this time when it was done the auto decomp works! I can kick the motor over with my hand! The auto decomp works!
What's different? Now there is a 1/4 in space between the bolt that holds the auto decomp shaft into the cam and the rubber gasket. Before this the head of the bolt was right up against the rubber gasket. It looks like everything has moved over (away from the chain side) 1/4 inch.
It sounds impossible to me too. I don't really understand what happened or is happening. I'll take a picture before I install the motor to better illustrate this. I also hope it runs! Wish me luck.