at a loss please chime in

Magnets can come loose from the flywheel and cause such problems..not very common though,but it can happen..excessive bearing play can let the crank get pulled upwards and let the flywheel contact the SSI armature sometimes too...some have J-B Welded the magnets back in sucessfully,but I wouldn't want to trust that with something spinning at 3600 rpms,if it ever let go,the results would not be pretty,and could be harmful to your health!..

I have read here someone got a head gasket for a HH100 and though its got the same bolt pattern as the HH120,,its inner diameter is smaller by enough that a HH120 piston can whack into it and make a disturbing knocking noise!..

It should not bind up,if it feels stiff only at one point,its possible the crank journal is egg shaped,and you measured it where it had the largest diameter...also they can wear tapered at an angle side to side too,that will show up as unever wear at the journal on the rod surfaces..since these engines had no oil pump or oil pressure,its critical the rod and crank journal clearances are within spec and not out of round,as they dont have any oil pressure to help cushion the parts and keep them quiet like you would in a pressure lubed engine...some cast iron engines are just noisy anyway,their cam gears and lifters can cause a lot of noise ,yet its considered "normal"--to a degree of course..
I cant hear how bad yours knocked,so I have to take your word for it that it sounds "bad"...

I dont know if they do sell undersized rods,if not,a good machine shop could probably shave some meat off each side of the "standard" rod and cap ,then hone it to the right undersize diameter,like they do when re-sizing a rod for a car engine...