A lot good questions which I don't answers for. But a few I can answer though.
Yes knurling does raise the shaft metal effectively increasing its diameter. Here I use it on spindle shafts where the ID of ball bearing is slipping on the shaft journal. This slippage actually wears out the spindle shaft bearing journals. Also years ago it was a way to repair bad valve guides in automobile engine when they had none replaceable guides.
An oversize shaft would work but how do you get the right size circlip to hold the governor on the shaft or how to position it retaining groove on the shaft? A machinist could copy the profile to the new shaft.
Why it came out may be caused excessive heat expanding the aluminum crankcase. Just don't know here as it is the first one I have seen or heard about in my 10 yrs of working on these Briggs engines.
The problem with thought on the governor cross shaft holding things in place is that the push pin moves in and out allowing a loose shaft slide out of place so I don't think it hold position if just place back in loose.
The ACR problem I have seen all have been on the Briggs 28, 31, and 330000 series using the 793880 camshaft. Of course ACR do fail on other brands too just as obvious as the Briggs.
I think you was just the unlucky user to have this happen to. I haven't seen service bulletins indicating this a common failure either.
Now Norm personally I don't trust Loctite or an epoxy is this setup but someone with more experience might know of something or method that would work. The washer serves both as a thrust washer and way for oil to get upper part the governor assembly. As for hole damage I have no idea unless got damage as the governor failed.
