Hi Ron, .003" on the rods (i presume this is the big end clearence) is toooo much-i have read somewhere that once the clearence on a shell type bearing such as fitted to engines of ours gets to .0015" they are clapped and will start to knock.I think the bush sounds kaput to me as well but i don`t know what the service limit is for that, but it must be in good order to maintain vital oil pressure to the big ends. Piston clearences vary according to application but .005" is a lot- I would have said between .0015"-.0035" is the range most aircooled road engines run on. Looks like time for a rebuild before the oil pressure drops too low and starves the driveside big end furthest from the pump, it seizes up, and the engine "puts a leg out of bed", taking out the casings.......
.Sorry i can`t offer good news, but think how nice it will be when all done up.... Regards, Bob.