Quick update for anyone following this.
I rebuilt the carb again, using the parts breakdown in front of me and not from memory or the way my buddy rebuilt it the first time. Come to find out there where 2 minor pieces wrong. I had the washers backwards and one missing from the Main jet. If you look at the breakdown, I had parts 1 and 4 swapped. This added too much height to the Main needle and caused a rich mix when throttle opened. I also made sure of the choke and float height and cleaned everything back up and air screw 2 turns out.
Installed the carb and it ran better while stationary. But still not like it should. Took it out for a ride and it had like half power. Never would get to full speed. Had no throttle response after half throttle. It would pull a hill, etc.. but very slow. and would speed up going down hills. pretty much road the trails at WOT, no need to slow down..
Anyways i got tired of messing with the old crap and put a new carb on and it almost runs perfect now. Good response throughout the throttle range and all speeds.
Only thing now, is a small hesitation during a quick throttle. Just a small bog and then takes off. This only happens during lower rpm range. I can barely touch the throttle and it kinda bogs and little and runs a little rough if I hold it there. but once past that point it runs good.
The new carb, does leak a small amount of fuel from the overflow tube only while running the machine. Turn it off and the leak stops. I'm guessing the float needs a minor tweak.
But before i get into this one. just need to make sure this could be the issue.. or should I try to adjust the air mix screw just a little or the airbox. Its a stock air box and cleaned filter.

 

Check/adjust the float height to keep it from leaking first and see if that helps. If it still hesitates,move the slide needle clip down a notch or two and check. If it runs worse,go the other way. Normal clip position is 2nd notch from the top. 2 to 2 1/2 turns should be enough on the idle fuel screw if you have the correct jetting on the new carb. 142.5 main jet, 42.5 pilot jet. Adjustment range still depends on what altitude and temperature range you're in.

 

Update:
Finally got the machine running right. Still have a tiny hesitation on initial throttle, but clears up quick. Hard to explain, but like a bump/bump and go. And have good throttle response once the bike is moving.
Took some tweaking on the carb. Adjusted the float. Ran the choke cable adjustment on carb almost of the way in. Choke still kills engine when set to full choke. I found the choke being set to far out, by seeing a little smoke come from the choke cable. Figured it was some fumes coming back into the carb and moving up the cable.
Adjusted the air mixture screw about 3 turns out. forgot how many turns, since I started doing 1/4 turns past 2.5 turns. I'm around 900ft elevation. Not sure why it needs to be set so far out. maybe could have set the main needle up one notch instead of the mixture screw. maybe just the type of carb. it was a new caltric carb on ebay. I know. probably a cheap chinese piece.. but seems to work ok now. I'm not a wheelie guy.. but in high range and from a roll, it will pull the front end up. I'm sure it would keep going on up if I pulled on it..
I'm actually surprised at how well it runs to be a 96 model.

I would like to thank OPT for all his help.

Now off to rebuild an 02 700 that I just got..

 

on the 500.. Now jumping from the frying pan into the fire..

 

well, the 700 isn't such a basket case as the 500 was.
The 500 wasn't even running and I got it for $200.. I've got $1500 in that includes new tires and the bike.. all new suspension/bearings, starter, on and on.. pretty much a new machine now..
I'm sure I'll find some quick redneck fixes on the 700, like the 500 had..

Its amazing how people will use wood screws to fix metal stuff. good example is the master cylinder on the 500, they broke the bolt on the cap and used a small screw to fix it.. they would have been better off using duct tape.. But when you see stuff like this, you need to go through the entire bike.

This is the first time, I've had so much trouble with the carb. Rebuilt a scrambler from ground up with no issues.

anyways, off to the 700. I'll have to start another thread on that one. I already know the shifter is not working correct.. I'm thinking the pawl detent etc.. it shifts but has no detent and don't have to use the brake to shift..

thanks again.

 

A very fine write up and follow through.
If this forum had one of those " LIKE " buttons, I would have liked this thread all the way through.
OPT, You are one smart dude. Thank You for all of the information.