The way it said to set the float was to warm it up and then connect a clear hose to the fuel drain (that can handle gas). Loop the hose and rest it against the side of the carb. Open the fuel drain, look at the level where the fuel is in the tube will tell you the bowl level (I took the book back to the library, but think it said at least 3/4 of the bowl).
I have not tried it, mine was actually set too high and the fuel was never shutting off (ran out the overflow). I adjusted the float until I was sure it shut off the fuel, but did not change the symptoms. Best I can tell, it does not seem to matter too much.
As far as where the oil dumps into the carb, it is right at the exit of the carb/ entrance to the cylinder. When I disconnect the hose and roll the throttle, oil oozes out a bit. Not real excessive, but since it mixes with the fuel at this point, makes sense it would not be a lot. The oil light stays on, I'll need to figure out where it senses it and check it there.
Sounds like mine is a DT 175, same as you described. However, it turns out it is a 1980, not 81 as the guy that gave it to me thought. I did get a chance to ride it at my friends, (30 acres) got it up to a little over 50 on the washboard driveway before I slowed down, worked great at speed, but still does not want to idle.
I sprayed carb cleaner all around the engine looking for air leaks, but didn't find any.