Using your drill (with the hammer feature turned off) Is fine. If you left the hammer feature switched on, or tried to use an Impact gun, you could end up breaking the crank snout off.
That bolt in your crank is unscrewing because you need some type of one-way clutch like I sugested before.
If that bolt hadn't unscrewed when you reved the engine, your drill would have started spinning at very high speeds and probably broke your wrist and/or fingers. Lots of guys (including me) have have had wrist injuries trying to use drills or kart starters that dont have some type of one-way clutch device installed.
You could cut the drive end of a 3/8" extension off, and then grind the extensions end to a triangle shape so it would fit/lock into the chuck of any 3/8 drill. Then simply plug in a 3/8" drive ratcheting adaptor and Allen head socket like my pics above. The ratcheting adaptor would work fine as your one-way clutch, If you shop around you could probably find one for under $20.
Here's a link to a used Snap-on brand adaptor selling on ebayca:
http://www.ebay.ca/itm/Vintage-Snap...009?pt=LH_DefaultDomain_0&hash=item564ac2c1b1
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Most guys use a 20:1 premix ratio with KT100 engines. Quite a few report this engine makes even more power using a 16:1 premix ratio because it increases ring-seal. If you use less oil than a 20:1 ratio, there's a very good chance you'll seize your engine. Make sure you use 2-cycle premix oil, not just regular motor oil.
Its completely normal for KT100 engines to smoke
a lot, so get used to it.