So I've finished working on this problem and the final results are in.
Drum roll please......................Tom, I declare you the winner!......but just by a nose...
It was actually more than just the oil and it still won't run at the top speed, but it now runs on 11 of the 12 speeds.
I have a way of making a short story long, but this is what I did, and what I found.
I ran the motor without belts, because Susquatch was curious, but it ran fine with no load.
The motor & control circuit wiring was suspect, because it didn't match the wiring diagram and it wasn't wired properly. I'm not going to go as far as say it was wired wrong. It just wasn't wired to CEC and accepted standards. I kept losing my train of thought trying to trace the wiring because they kept mixing up the symbols, so it was easier for me to just start from scratch and redo it all.
An example is; the motor tag is U, V, Z and the (internal) motor wires are U, V, W and the control wires are U, O, Z.
Sooo...... O goes to W (which is motor tag Z), but Z control wire goes to V, which is the capacitors.....but Z on the tag is the auxiliary windings so Z should go to Z.......but O goes to W, which is the same as tag Z.....but......ugh.
So after rewiring it all I got 850rpm, but still couldn't run 1100 or 1600. However, I only got 850 once then it was back to not starting. After about 3 tries, it wouldn't start at any speed and just hummed. Sounds like a blown cap, but upon checking they looked good. Out comes the motor and off comes the front plate again. When I was reassembling the motor the 1st time, I guess I didn't tuck the switch wire out of the way and it had snagged on the centrifugal switch and ripped lose. So I soldered it back on and reassembled.
While I was doing all this I noticed there was a tear in the insulating paper for the Run cap and it looked to line up perfectly with one of the terminals. Now I couldn't see any signs of it shorting out, but after I fixed it and put it back on, I could consistently get 850. Still couldn't run 1100 or 1600, but it almost would start at 1100.
So then I went from ISO68 to the lighter weight ISO32 oil and I can consistently get all speeds except 1600. The motor definitely strains to start at 1100, but it does get it up to speed. So I'm stopping there and will just use as is.
My final conclusion to all this is that the motor is in no way whatsoever 1.5hp. I doubt it's even 1hp.
Going to a lighter weight oil is a must because the motor is simply underpowered.
That being said, I am still clinging to the belief that there is an issue with the centrifugal switch. The switch itself is ok, but I don't think it's weighted properly for how this motor is used.
If the motor was just underpowered, it would bog down, not be able to turn the load, and end up tripping the breaker. This motor bucks and heaves as if the power is quickly being turned on/off.
The contactor is staying engaged, so there is no lose of power. The only thing I can think of is my original thought. The centrifugal switch is opening too soon. That causes the motor to slow down and switch re-engages. That sends a big inrush of current to the motor and causes the "bucking". Then it speeds up and the switch opens.....repeat.