Can hydraulic lifters cause inadequate full power?

Obviously you have checked the tachometer for accuracy by now. I
agree you should not have to go out of spec with the ignition timing,
but at least make sure it is set on the slightly high side (i. e. up
to the + 1/2 degree from spec. And you should at least witness (or
do) the timing check.

My O-320 seemed very sensitive to seemingly minor timing variances.
BTW make sure the 180 degree timing is correct too - just in case your
mag ignition point cam is not symmetrical.