Idle @ 0deg is fine for this type of engine. See attachment. It might deviate from listed due to other factors (idle regulation in DME adjust ignition and ICV according to circumstances).
If your Reference mark sensor comes over to the mark on the timing cover and the piston is in TDC (remove spark plug and use a long screwdriver or whatever you prefer.
I had an engine in with some similair "adjustments". The timing damper in front was set differently due to a non S38B36 crankshaft. It had a longer stroke than original and defenately was not a B38 with 4 torq screw. instead of a screw it had a nut on front which according to ETK is not used in S38B36 engines. Pics here
http://www.m5board.com/vbulletin/e34-m5-discussion/145193-winding-noise-rebuilt-engine.html
Your fuel pressure should be 3.0bar (for B36), B38 is 3.5 bar. Did you measure AFR with a wideband controller during WOT?
As i stated in my first post, i did verify that the marker on the damper is a true TDC with a degreewheel and a rod on the piston + dial gauge. The mark on the damper is on the one on the cover @ idle.
I dont know if this will make any difference, but Pretoria is 1300m above sea level.
The fuel pressure is on 3bar when idleing and very small throttle, but 3.5bar at WOT.
The AFR @ WOT on the dyno measured in the regeon of 13:1 through the whole RPM range and almost 15:1 @ part throttle. I dont know what type it was, but the dyno facility had a lambda sensor in the back of the exhaust. Remember that the SA spec cars didnt have cats nor lambda sensors and the airpump was disconnected.
Still the question remains? why did the car hesitiate and now that it has 6 deg extra ignition timing through the whole range it doesnt hesitate anymore.
I have a very good "feel" for this type of thing, since no one ever felt what i feel when i want to show them. you can see on the dyno graph that the power dips slightly at 5500 rpm, so my "feeling" was not without substance.
Can the MAF influence timing?