To test compression - open throttle wide, install compression tester, crank thru at least 5 compression strokes. pressure should read between 75 to 110. If the engine has an internal compression release, you may only read about 60 PSI tops. To defeat the comp release, if the engine has wrap a rope start, turn the engine over backwards, to get true reading. Does the engine bounce back after you pull it over? If it does bounce back, than look elsewhere for problems. If it mushes thru, or does not bounce against compression, first check valve clearances, both stem to lifter and stem to guide. Listen for leakage thru the valve seats., if you don't hear any, then look to cylinder/piston wear or rings.
If the engine smokes - check the following:1) oil viscosity - SAE 30 should be used. 2) check the cylinder for wear / scoring. If the engine was run without maintainance or no air filter, excessive cylinder wear is probably the culprit. 3) check valve guide clearance - worn intake valve stem or guide will suck oil out of the crankcase, and into the engine. 4) check the crankcase breather. If it is jammed, the crankcase will pressurize when the engine gets hot, forcing oil out of the case thru guides and seals. 5 if the engine has sat for any lenght of time, the rings may be stuck on the piston lands. You can try spraying carb claener around piston, at clost to TDC, and then GENTLY tap piston head with a plastic hammer Try doing this over every 2 minutes or so, over a period of 1/2 an hour, turning the engine over, and wiping out the crlinder after every effort, until no more carbon appears. Immediately change engine oil, and run for 15 minutes to warm engine. Let cool, Retest. If engine still smokes, pull piston, after other options are exhausted.