Merlin Cagiva problems

Good Day ,

I have a 350cc Merlin Cagiva which has pretty much overnight developed an engine issue. It will now not fully rev. The engine sounds muffled when revved, like if the exhaust silencer was blocked ( which it is not).

I have checked the carb, cleaned the jets, tried different jets and even tried a new carb. This did not solve the issue.

I checked the coil and tried a new coil. This did not solve the problem.

I checked the stator and tried various advance and retard positions. This did not solve the issue. For my sanity, can anyone explain to me how the CDI works? The engine when was running fine, the stator was pretty much on TDC. Does the CDI then deal with the timing of the spark when the engine revs are increased. Not having an useful specs for the engine, I assume that TDC is correct.
Whilst taking the flywheel on and off, I did detect some movement in the main shaft. I doubt if the main bearings have ever been changed! If the bearings are faulty and subsequently the main seals may be faulty, could this possible be the source of the problem ( taking in air or pushing out fuel ). The engine is not smoking excessively, but maybe that is due to bearing/seal failure only being on the flywheel side.

I have approached Rex's Speedshop for advice, but before I part with a small fortune on a new ignition system, I thought I would ask you knowledgeable guys for advice.

Kind Regards

Bruce