Stock 1954 Mercury - To preface, I'm just an old-time shade tree mechanic and it doesn't take too much to stump me.  The engine has been progressively running rougher (missing) for the past several hundred (700-800) miles and last week I peeked inside the distributor cap to check for cracked or broken pieces.  Oh, the engine has about 2,000 miles since rebuild.  It appears that its firing well in advance, as at each brass electrode inside of the cap (each plug wire) the flat surface surrounding the electrode on the leading edge (counter-clockwise rotation) is blown or melted away in a tight vee pattern to a depth of about 3/32".  Timing is set at 3 degrees BTDC
at 500 rpm.  Also, the rotor cap electrode firing end is black (dusty carbon) only on the leading edge instead of the middle of its face.
The points, set at .015, appear to be opening correctly.

The engines starts immediately, idles a little rough, and then begins to protest when I let the clutch out.  What gives? ? ?

It almost sounds like "rotor phasing" is off, but I'm not sure how that would happen in a stock setup. Maybe if the distributor was stabbed wrong? edit: That can't be it.

Obviously need a new cap and rotor. This is where an ignition scope would come in handy, if you know someone who has one. They take all the guess and by golly out.

I know a guy who does a lot of dyno tuning and electronic point conversions. He keeps a stack of common distributor caps and rotors. The caps have as big a window as he can make between the coil post and number 1 cylinder. The rotors have a painted white line center to the cylinder contact. After he sets the timing, he put the light on the cap, and sees that the rotor contact is pointed at #1 when it fires. Now, if it isn’t I don’t know how you fix it, but it seems along the same lines as what your talking about. Maybe the points bolt in and fit, but are a bit off, rubbing block too worn or too tall to begin with? I’m sure someone will know.

miker
55 bird, 32 cabrio F code
Kent, WA
Tucson, AZ

On my '57 with an electronic conversion kit, the reluctor slips over the original cam.  This caused the rotor to not seat fully on the shaft causing a crash between the rotor and the cap.  I had to grind a little off the bottom of the rotor so that it would seat fully.  A friend of mine had the same problem on his car at the drags, I gave him my spare ground-off rotor and got him going.

John - "The Hoosier Hurricane"

This has been too many years back for me to be coherent - but using a "windowed" cap or (in the case of my high zoot tuner friends - clear) - you use a timing light to look at the position of the rotor relative to the cap terminal. What you want is for the engine spark to jump just ahead of the terminal at idle - and then as you progress to full advance, move to a better fit at full throttle. The modified cap is rigged for adjusting the fit. The cap you are going to run on the engine is then altered to mimic the positioning of the test cap. The worst one I can remember was on my buddies '69 340 Dart and we had to do a good bit of "Dremel" work on the Mopar cap to get it shifted to a better firing location. 

 
 Steve Metzger       Tucson, Arizona

This is all good info but it doesn't answer the question or address the problem.  The distributor cap is being destroyed as it appears that it is firing early.  The timing is set correctly as are the points.  Has anyone ever seen a dist. cap getting wrecked like this and, if so, what was wrong and what is the remedy.

Hi Lanny.  First I am a novice at this but this struck me.  You say  "It appears that its firing well in advance, "   but go on to say  "Timing is set at 3 degrees BTDC "
 I thought Y- blocks needed 6 to 12 degrees.  Maybe its a timing issue.   Others will jump in and put me right then we all learn
 
Re: rotor phasing MSD has a good video on you tube
 
stuey

So the point cam - and the rotor drive are mechanically fixed. The cap is securely locked into its slot. So that part of this is verifiably correct.
Is the spark advance working? This is a purely vacuum controlled advance system and so far as Y-blocks go, the initial 3º is severely retarded. Is it simply staying at 3º as the engine accelerates? 

 
 Steve Metzger       Tucson, Arizona

Stuey and Greenbird, I will verify 3 degrees timing with the Merc repair manual but I have never known how to check if the advance is working properly.  More help?

Was the dampner replaced or rebuilt when the engine was done? I'm just assuming they were like the Fords and if the ring has slipped you won't know exactly where your timing is. Have you checked the point dwell? 
Every cap I have seen shows it arcs on the leading edge and the rotor.
Has this car been converted to 12V?