The seal is at least 1/16th out from the case, maybe even 3/32nds.

How much thicker is it than your original one I use the IT 175 seals on my Ct1c like MarkT recommends because of the dual lip 

Both styles OEM seal are 8mm thick.

Might have broken a ring or sucked in a reed?

I really like these older on/off road bikes (1978 DT175) but I tell you they were sure put together like crap. AFAIK there is no way to align the exhaust head pipe gasket to the cylinder or the pipe; you just eyeball it and hope it stays in place while the pipe get tightened down. A dab of grease will help but still, what a weak design.

 WFOPETE....  exhaust to cylinder gasket is a ring that fits solidly and securely into a recess machined into the cylinder.  Perfect alignment.   Maybe you still have an old gasket installed?

Back to the original thread from the thread hijack...

Metal in the oil drained is the transmission/clutch. Not sure what scraping sound could be. Did engine still run? Was scraping while riding or when stopped or both?

The engine still runs. I will try to post a video tomorrow of what it sounds like. As soon as I installed the crank seal, I started hearing a squeak when turning it over. I thought the squeak went away when I ran it for 5-10 minutes while tuning the carb. When I rode it around the block it died and that’s when the rubbing sound started. The squeak is still there. I think I’m going to have to pull the head and inspect the rings and cylinder walls. I looked inside through the spark plug hole with an endoscope, but didn’t see anything obvious.

This is a wild guess do you think it’s the magneto scraping possibly your source or lightning coil video will be great do you have mechanic stethoscope to help find the problem 

Here are 2 videos. One is me kicking it with the run switch off so you can hear the noises. The other is it actually running. The reason it's smoking so much is because I put some 2 stroke oil directly in the cylinder to lube it up.

www.youtube.com/shorts/c6FPOSq5rC0



www.youtube.com/shorts/0iVznSsdgjk

I'm not sure which or both crank seals were replaced but I wonder if you may have a clutch hub nut, primary gear nut or flywheel nut not fully seated. The sound of the condition isn't very clear in the video. Sounds like a "Whirring" noise which to me indicates a clutch basket/primary gear sound.