Yes it is scraping in the engine. The scraping comes from the pointy thing that is on a joint attached to the main smaller gear in the engine... I believe the connecting rod?
I opened up the engine and saw it barely scraping the bottom of it as it comes down. I am not sure if this has to do with why my pull gets stuck though...
On another note, I dropped a screwdriver bit on the outside of the engine while setting up my throttle cable... for the life of me I couldn't find it. Is there any way that thing could have fell into the engine? The engine was totally put back together...
Forgive me, that post was just too funny..
Okay, one thing we can say for sure.. it's not the conrod.. it's everything but pointy...
the only "pointy" thing is the dipper arm, and if you haven't touched the crankshaft/conrod.. (which you don't need to when removing a governor) it's impossible for it to touch the bottom of the crankcase!
(it comes close though!)
IF you removed the crankshaft (and conrod)
chances are you did something wrong.
IDK if it's even possible to install the conrod upsidedown,
but if it is, it WILL be really painful for the engine.
the conrod should be at the same UPWARD angle as the cylinder if the dipper is pointing straight down.
like that:

Installed, the dipper is pointing nearly straight down all the time, if it's at an angle, you messed up.
But I don't see why you would touch it in the first place..
so, yeah... likely that's not it.
Yes.. the screw driver bit can vanish inside an engine very quickly..
lost it in the head, and it can lock up the lifters, pushrods and cam
(and the scraping noise will be just that!)
get the push rods out, remove cam and lifters and check!
You MUST find it...
Now, reassemble and check the valve lash
(@ compression stroke, TDC!)
Good luck!
'sid