The rod cap is "cracked" and will only fit on one way as Bob and Lee describe...you can bolt in down wrong and maybe not notice.
There are "tabs" (little round castings) cast into the rod, they should go to the same side.
Make sure the crank bearings are seating perfectly as there should be no room (or very, very little) to move the crank side to side once the points box has been installed. It sounds like you have a lot of slop if the rod binds resting the saw on the side, forcing the rod to the edge of the journal. If you replaced the piston, did you install it on the rod the same way, with the same side of the rod facing the ex vs. intake? Little things like that can make a difference if the rod turned countless rev's oriented one way, then you turned it around.
Do a visual inspection on the sides of the rod itself, if it bound up while running, it will no doubt have left a rub mark on the rod. The "copper" appearance of the rod will be noticeably gone where it has rubbed....work that area with a flat file to fit.
My 797 had a little wear on the side of the rod, just removing the smallest fraction of material will gain you the clearance you need.
Nice project BTW
-Andy