is that severely work lifter on the exhaust port of cylinder #8? and the rag was found behind the exhaust pushrod of #7 on the other side?
the "breaking in" step, of the lifters with the camshaft, is an area I've been hearing people are having trouble with, again and again with their engine rebuilds... but only in the last 15 years or so. It is unclear if the materials are changing, ie. using chinese steel with different carbon content then USA or Japan makes, or knowledge and procedure for proper break-in is being lost.
now finding a rag in there, presuming it's paper and the lifters were installed and before the paper was present, it's unclear to me if that caused any issues. were it to prevent a lifter (it's touching) from spinning, my instinct is it's unlikely, but possible. if lifter bore tolerances were tight to begin with, maybe the cellulose in the paper could cause that.
if the lifters aren't freely spinning on assembly, or if one or more of them doesn't spin on initial startup.... it only takes a few minutes operating that way for the lifter to begin getting a slight groove, minimizing a spin even further.
regardless, the rag is bad form. further, the lifters not spinning is on the builder, even if the customer did the break in. presuming, the customer didn't accidentally start it up dry of oil.
an hour of run time on the new engine, is that right? well, that lifter with the deep groove must not have been getting much oil, because that kind of wear looks pretty severe, to me.
hopefully, your valvetrain and heads are in still good shape. but a new camshaft and lifters are not on the list of parts.
