Mate, I've held off till now....but reading this thread I'm just sitting here shaking my head! .....sorry!
I will try to explain;
The reason to do a compression test is to get an indication of compression pressures. In a perfect scenario, all cylinders would be of identical reading; in actuality, you can expect to see a slight variation from one cyl to the next.
Right; you do your test with engine at operating pressure, all plugs removed, throttle wide open. Record the readings; any variation over 10 psi indicates a problem in the low cyl. This could be worn rings/cylinders OR bad valve. Other things could also play a role; leaky head gaskets etc, but would be also indicated by a miss, so we'll disregard that.
Squirting a bit of OIL, [not diesel] into the weak reading cylinder provides a temporary piston seal, so then if the repeated compression test comes up, this indicates that the rings/cylinders are crook, if the reading is the same, this tells you the issue is with the rings.
Obviously, high mileage, worn out engines will not readily respond, but they also give those other symptoms mentioned; burning oil etc.
Now, I could well be wrong, have been numerous other times in my life [ask my wife], but I personally think that pouring diesel into your cylinders and expecting it to magically cure the low compression issue is a waste of time. In fact, it could possibly remove carbon build ups etc, that are in fact assisting some sortta piston seal, with the result the engine actually loses compression!
Good luck buddy, flatheads are remarkable in their ability to run when absolutely buggered, which is a big part of their appeal. That guy Kiwitony [a good mate of mine] is close to you and pretty clued up, having owned his 37 since new [almost], at least it goes better than new! Meet up with him, he is a stand up guy and I am sure will be only to happy to assist.
Also, feel welcome to drop me a pm any time, I'll help out if possible, but live a coupla hours away [Air NZ]