What was this vertical shaft engine doing? A lot of the horizontal shaft engine's have just a simple splash lube type of system and they fail because lack of oiling at above goverened rpm, or oil clearances that are just too big. The billet rods we put in them still do splash lube, but on the 'dipper' there is a hole and small scoop that forces the oil onto the crank journal through the dipper. They require .002-.004" of oil clearance to keep everything lubed up correctly.
If im not mistaken, a lot of vertical shaft engines have some sort of pressure lubrication system that sends oil through the crank up into the journal, much like you would see with a v-twin, or automotive crank. If you add higher pound springs, or increase compression, you can oval out the connecting rod bearing surface, which will eventually cause some sort of failure.
With the flywheels, you get two things that happen at high rpms or under acceleration, 1) flywheel breaks apart due to the extreme centrifugal force and the cast iron splits, then shatters and flies apart. This is typically a high rpm/balancing problem. 2) The other thing that we commonly see is a 'spun flywheel' This is seen in both billet and cast iron flywheels. What typically is the problem here, is that the flywheel is removed, then replaced and not torqued to factory spec. E.g. so lets say you have a 13 hp engine, and factory spec says you gotta torque to 85 ft lbs. Well, you just grab your wrench and wrench it down as hard as you can and get a belt on that flywheel, vice grips on the crank, engine bolted down to keep it from moving, and lo and behold you get only 30-40 ft lbs because you cant get it any tighter. The key does not hold the flywheel in place. The friction between the flywheel taper and the crank itself holds the flywheel in place. that is why you see many engine builders run their engines without a flywheel key. I do not use a flywheel key myself in my performance builds. So why do we have a flywheel key? Just to hold the crank and flywheel in the place wherever stock timing is. If you have a timing light, it will not matter, and you can just set timing yourself without a key. I actually spun a billet flywheel. The instructions said torque to 65 ft lbs, but it was a big block flywheel. I was really mad, but luckily it did not have a key in it, so it didnt shear and damage anything, just some scuffs that were lapped out. I torqued it to 100 ft lbs after that! To wrap this flywheel thing up, it is also possible that the key may have been installed with the taper of the crank, instead of parallell to the crank. If you put the key in 'crooked' when you torque the flywheel down the key can actually put pressure up on the flywheel and prevent the flywheel and crank from properly mating, making the flywheel ride a little crooked.
Would you say that it is possible that you removed the flywheel, and didn't get it torqued down properly?