Steve,
The ratio of swept volumes Marv mentions is about the minimum. The higher the ratio of swept volumes displacer to power piston, the less heat you will need to run it.
You don't need to stick rigidly to those design parameters, you might have a better chance if you did, but as long as the following is ok it should run.
very free running (low friction) - With the hot cap off .. the whole assembly should spin over by hand 10 or more revolutions with a flick of the flywheel.
as leak free as possible - test in water like you did but connect a tube to it and blow into it somehow. Mine was easier as it had totally separae cylinders connected by a tube. Obviously no leaks are allowed around the hot cap / disp cyl interface. (this was what stopped mine running at first!) Only small leaks allowed around displacer piston rod. The power piston should be a nice sliding fit in its cylinder.
A decent ratio of swept volumes. I originally designed mine with 1:1 ... it was never going to run, so I made my displacer a bigger bore and increased the length ... this just helps prevent heat transfer from one end to the other.
Have you definitely got the cranks at 90 degrees to each other?
By the sounds of what you said, with the compression point shifting around but not far enough, this suggests the ratio of swept volumes is too small to me. The easiest way to change this would be to make a new power piston and cylinder with a smaller bore ...say 1/2". Could you sleeve the existing one and turn the existing piston down?
Nick