Update. Thanks for all of the comments and suggestions.
Did the leak down test. 20% leakage - all coming out of the carb. No air out of the muffler or dip stick.
Was able to get the mower started and running. It "smoked" for 20 - 30 seconds and then the smoke went away.
Here is a short video. http://www.youtube.com/watch?v=Ds3aF7R1bkY. You can hear the noise that the mower is making. Also the engine is surging - except when the choke is on. Not on the video is a quick test of engaging the blade and engaging the transmission. Both worked.
After shutting off the engine, I noticed a lot of oil dripping from under the housing. After removing the blower housing and flywheel (which was drenched in oil), there was oil around the crankshaft seal.
Can the oil seal be removed and replaced without taking apart the engine? I'm not sure I want to spend much more time on the mower.
Thanks