Several things don't make sense here.
FIRST, when you say the advance mechanism dropped down, that just doesn't make sense to me. That would either require the entire shaft dropping down, which means you would have MUCH bigger issues such as the gear not engaging the cam properly, or you've got a major malfunction in the upper half of the distributor, which would have nothing to do with the bushing. Why do you say the bushing wasn't getting oil? Is the hole plugged, not feeding properly from the engine, or what? Did you replace the distributor, repair it somehow?
Second, how do you do a "running compression" test? Never heard or seen that done.
Third, that 172 compression result seems pretty high. Was that only on #5? If it is, that's very strange. Is your gauge accurate? A cheap gauge can be off by a mile. If it's reading 30lbs or so high, that would put #7 down in the "problem" category.
Fourth, a leakdown of 2% is really REALLY low. That alone makes me question either your tool or how the testing is being done.
Fifth, you mentioned nothing about checking the plug wires (actually, this should be first). Did you Ohm them out and see what reading you got? Have you tried a new set of wires or rerouting them as Howie suggested? This would probably be my first move. A bad wire can show up at idle yet still give just enough OOMPH to fire the cylinder at speed. To check this cheaply, just switch 1 wire with #7 and see if the miss follows the wire.
The biggest problem is that you don't know anything about how the engine was built. Not your fault obviously. If some idiot was just trying to make a dollar on the car, who knows what parts were used in the engine. It wouldn't be the first time that a hodge-podge of parts were thrown together just to get a "running engine" for a sale. Hopefully that's not the case.
