you have an issue if a swede 2 stroke is boiling over, i have never had that happen. im not graham jarvis by any means but i have put the bigger ones through some tougher paces and slow going and never lost coolant. its likely you have a bad cap, altho it could actually be overheating. i doubt it tho.
i like to run a 13 or 14 in the front on the 400 and up swedes, as the 12 tooth countershaft sprocket really gets hammered on a bike with torque. harder on the chain too making a sharper bend. im running a 14/52 on my 87 430 right now and it seems to be geared well all around. 1st and 2nd are working well in the woods and the rest of the gears are good, of course. i would kinda gear the bike by how the bottom gears work, as the upper gears always have enough in them when youre dealing with these swedes. i havent run my 500 for a few years but im pretty sure i ran similar gearing...i would have to check. the 14/48 you were running im sure would be too tall, as the 14/52 ive found is nice compromise. its really the same as 13/48, but i like to get the bigger sprocket up front as previously stated.

the 500 should have plenty of power to have gearing that works well everywhere, its not a 250. if 1st and 2nd are working well for me with no clutch abuse im happy. ive found jt sprockets wear well are are good cheap steel. aluminum sucks especially on the 500.
if the bike is running well, and not kicking back when starting, you could leave the timing alone. if anything perhaps retard it abit closer to 2mm to start easier and be a little easier on the motor and its octane requirements.