No need to set the air gap, it is fixed. If you remove the stator (normally leave it alone), re install it as close as possible to the original position.

OP are you asking about points?

If you remove the stator, isn't the gap critical? It's probably in a manual about adjusting it.

The stator can be rotated to adjust the timing but the air gap is fixed. As the OP pointed out, there is no access to it with the flywheel in place. Once they went to breakerless ignition in the early eighties, the coil was moved outside.

Did they use both the point gap AND the stator to adjust timing? I couldn't find anything in the manual at all.

Not true. Flywheel magnet gap is just as important on an under-flywheel magneto as an external coil (like Briggs, Honda, etc.).

Tecumseh used to sell a special cutaway flywheel specifically for the purpose of setting the gap. Kohler did the same thing with the "K" series.

A lot of mechanics would take an old flywheel and cut a section out of it on a bandsaw to achieve the same result. The Tecumseh "tool" was expensive and a good substitute could be made from an old flywheel.

I had already removed it to thoroughly clean everything in the area as much as possible. I'm not certain what "the original position" was. As Canguy posted, "it can be rotated" so I installed it assuming the best position would be to try to put all three points of the stator roughly equidistant from the flywheel inner surface. Is this correct? (I also then tried reinstalling it several more times favoring the right, the left, etc., still getting no spark so my problem probably lies elsewhere). I don't plan to be buying or making any special cutaway flywheel tools, so looking for the best way to eyeball it.

For future reference, what effect does it have if this is canted a bit one way or the other? Is it a matter of..
spark/no spark
weak spark/strong spark or
does it have an effect on the timing?

Rotating the stator affects the timing but a dial gauge and buzz box or light are needed to accurately set it after the points are properly gapped. If those old Tecumsehs were tuned to specifications and compression was good they were super easy to start and idled down under 100 rpm. Darn good motors.

If I remember right..
Replace points and condensor
lube the cam and felt lightly with some lubriplate A.
Remove cylinder head, measure before top dead center according to the chart.
Put an ohm meter or circuit light on the points to tell when contact is made.
Rotate stator until points make contact. Tighten.
Replace cylinder head with new gasket.
Re-assemble.

Look up tecumseh L-head service manual and see if your sears model crosses over to get that timing dimension.

Been a while so feel free to correct this list.
I had an old toro whirlwind that used a tecumseh-lauson 3.5 hp lav35. Great engine. Previous poster is correct in mentioning those things would idle down to nothing.

Here is a link that might be useful: L head service manual

This is good but seems like fine tuning it to perfection. At this point, I'm still just trying to get a spark!

Thanks again for that Tecumseh service manual!

IIRC the spec is 1/4" BTDC. My old Chiltons says to use a special tool which is basically a dial indicator wirh an off set in it. Taking the head off would accomplish the same thing too.