> 1. How does one determine if the reeds are working properly or when to
> replace them.
If you're not getting fuel to the cylinder or you're getting too much fuel to the cylinder and you already checked the carbs then it could be reeds. The only way to be sure is to look at them.
> 2. Will a Hobbits motor run without installing the muffler? Long story,
> do not ask.
It probably could, but I mean it'd run like shit.
> 3. I ordered a package of gaskets from a Treats for a rebuild. In the
> package was a two sided metal gasket with a white insulating material in
> between. What is this used for?
Not sure what you're talking about, can you post a pic?