My Dt360 doesn't want to run even though the carb is perfect and I have good spark. In runs on starting fluid but smokes like crazy! Looking in the cylinder there is lots of oil running down the sides? Also the flywheel is a little rusty? 
what should I be checking/fixing? 
 

Amazing what works. Clean carb & sounds like you'll be pulling wheelies down the street by lunch time.

Have you got a flywheel puller  If no get one  even a cheap one will work for a probable one or two time use.  when you use it make sure you get both washers behind the big nut out and then thread the puller by hand with some penetrating oil on the threads andthread it in and out until the puller goes in abou a half inch.  Then I use a 1/2 inch battery impact and tighten it up and then take away the impact  and tap the end of the puller with a hammer .  do this a couple of times and it will break loose.  It will not come off without the puller. When you get inside the pulser is the balck bakelite with the solder points on each side.  Measure the resistance between the 2 solder points and it has to be 90 to 100 ohms to work properly.  What happens to the pulser is the fine wiring they use on the coils inside it get broken when the spinning magnets on the flywheel get pinched between the pulser and the magnets when there is dirt and debris bouncing around in there and it breaks the fine wires in side the bakelite and then the pulser does not signal the ignition properly. There are 2 circuits in here and one is for starting and one is for running.  Sometimes it will start and not rev up and sometimes it will kick back and run  and leave you stranded.  They are not fixable.  You will need a different one.  My experience has been if you have a good one and you keep it clean and dry in the mag it will run a long time
Doug

That’s what I thought but the carbs been ultra sounded and cleaned 3 times and rebuilt with new jets and everything

all i c an say is pray the pulers is not damaged  they are gettin hard to find and they aint cheap
doug..

Also make sure to make  or get a new gag cover gasket and keep the mag area clean and dry.  And aalso torque that flywheel nut to YAMAHA specs
Doug

Thanks for the info Doug. I will probably pull it this weekend and put in new main seals I ordered. Another piece of info on the bike: I put a different carb on it and it ran pretty well above 3000rpm....bellow that it wouldn’t run hardly at all. I rode it a couple miles and it was making great power. Then I rode back to grab a helmet and it fired a few times upon kicking it and then I heard a decent pop from the engine and it started smoking out of the side cover by the front sprocket and refused to even sputter or fire at all!
been in the shed ever since...

Sounds like the flywheel crank key is Toast & that put the timing way out then backfired in the crankcase & spat the crank seal out behind the mag.
It's possible the right side seal could be pushed out but sounds like mag side first which--if it is--could have saves the right side seal from the same fate as pressure was released at that point. All a guess of course going by your last comments. You say cover by front sprocket so i'm thinking mag cover but do you mean something else.