Yes, the rear axle nut probably doesn't require the 85ft-lb shown in the manual, especially since it had a cotter pin to keep it in place,... but on the other hand, it won't load the bearings because the spacer prevents the force from squeezing the inner races inward.
I don't think anybody remarked about a break in period for bearings. The answer is "NO, there is no break-in period". Install the bearings and ride it like you stole it - immediately. Something went wrong with your Dennis Kirk experience.
I'm sure you peeked inside the needle bearing on the LH side? Mine was rusted and the inner race was pitted from rust. My bike apparently sat in a damp environment or somebody power washed it.
-Mike
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