The motor is dieseling because you are operating a high compression motor on low compression fuel. Dieseling is detonation. The fuel is exploding before the piston gets to top dead center. This can result in broken pistons and rings or pistons with a hole burned through the crown if you continue to operate it on junk fuel. Either lower the static compression ratio by changing to dished pistons or bolt some later heads onto the block that have a larger combustion chamber, such as D3 (1973) or D4 (1974) heads. Do not use D2 heads, they're junk. Or, use high octane fuel in the motor.

Back when these motors were built, we had good quality leaded fuel available at the pumps. The tetraethyl lead in the fuel slowed down the burn in the combustion chamber so that the motor could operate at a higher static compression ratio without detonating. We no longer have that fuel available to us at the corner gas station.

The power loss could be anything. I'd start with the least expensive first. Run a ground cable from the motor to the firewall and from the firewall to the frame. Disconnect and clean all wire terminals and tighten them up. Make sure you have a ballast resistor or resistor wire in the feed line from the switch to the coil. This will allow a full 12v to the coil for starting, then the wire/ballast will begin to cut the voltage after warm-up to keep from frying the coil/points.