[RichardJ]

>>and made sure the new rotor was pointed to # 1<<

#1 what? Just the way you wrote that, I hope you're not pointing the rotor to spark plug #!.
When someone says to point the rotor to #1, they mean the distributor cap tower that the #1 spark plug wire plugs into.

>>removed HEI and power and ground to it - no plug wire connected - when I rotate the gear - I see a visible spark on #2 position but not on others<<
>> I rotate the gear by hand there is a large spark from the terminal on # 2 - and only a click but no spark on the others - plug wires are detached at this point<<

In all likelihood a unreliable test. A bench test by spinning with a small motor to simulate a Dist Machine will work, but forget any finger spinning.

>>I see a visible spark on #2 position<<
Where exactly are you seeing this spark ? If checking for a spark you should be using plug wires and GROUNDED spark plugs.

From what you have posted, I see a very high likelihood that you do not have the engine at TDC Compression AND the distributor rotor pointed toward the #1 PLUG WIRE TOWER ON THE CAP.


.035" is a good gap for your HEI 250 inline.

In 1975 GM set the HEI plug gaps at .065"
By the late 80's , GM reduced most plug gaps to close to .035" and by the mid 90's the remaining V8s that had a distributor such as the Vortec had gone back to a small cap HEI with 7-pin Module mounted on the outside.

GM was originally forced to the oversize HEI cap because of the .065" plug gap. I took them all those years to figure out .065" gap caused higher emissions, lower fuel mileage and with little to no increase in power.

The spark plug wires in 1975 were of much lower quality than the wires that began to appear in the 1980's. The .065" gap along with the HEI, ate the 1975 plug wires very quickly. In 1975 the plug wires had to changed almost as often as the points in the pre-1975 points ignition.