So I first took the engine apart again, this time removed the aluminium piece that holds the camshafts in place... I only noticed a keyway on the radiator-side end of the intake camshaft... no others. The sensor had a gray-ish thin magnetic deposit on it, cleaned that right off (no idea where it came from), then re-assembled the top.
Finally got around to do the cylinder compression test...
Using a kit purchased from Harbor Freight Tools, about which I've read reviews elsewhere that it displays less than actual pressure... here are the results:
Cylinder 1: pressure: 0
Cylinder 2: pressure: 35 bar on first spin... 45 second spin... 60 on 3rd spin.
Cylinder 3: pressure: 0
Cylinder 4: pressure: 0
It "appears" that valves are "bad"...(I don't see them bent at all, though !) and presence of compression only on Cylinder 2 now explains why when I cranked the engine, only 1 cylinder "wanted to go" and the others remained quiet... Something that bakes my noodles ATM is how did the valves get this way - when I cleaned them up (first initial engine work), I did NOT see them bent in any way... however, at that time, with valves closed, I did notice that my cleaning liquid (I used brake cleaner) was slowly bubbling and leaked into the cylinder chamber for cylinders 1, 3 and 4... Cylinder 2 valves were the only ones that held the liquid... I should've thought something wasn't right on the spot, especially since on all my other cars where I cleaned the valves I never had leakage at the valves)
I've read elsewhere on the web (and I don't know if this applies to me as well) that if the camshafts are not properly aligned, valves will remain open (which seems to be my case?). Since I did NOT remove the camshafts at all, and since I also clamped them solid (I used those "Irwin" brand clamps with rubber boots... had them tight) so that there is absolutely no way the short chain at their end ever skipped a tooth (and the way I secured them it never did). the thing that would make sense is maybe the previous owner also had his fingers in them as well (since I found the timing belt advanced 3 teeth).
I am also concerned because another Audi forum entry elsewhere was detailing that the camshaft alignment specs given in the Bentley service manual were correct for the exhaust camshaft, but incorrect for the intake (saw something about Bentley stating both were to be set at 16, when in reality only the exhaust was to be set at 16, while intake was to be set at 14 or 15... ).
How do I verify that the intake camshaft is properly aligned to the exhaust one?