HELP! Transmission knocking?! Clutch maybe? PLEASE READ

Well, I finally got my turbo issues resolved- I bought a new CHRA.. So, I get the driver side turbo in last night and fire it up to take it for its maiden voyage as a twin turbo. When I starrt it, it makes this HORRIBLE knocking/clunking sound when the clutch pedal is released. When it's depressed, it seems to be about 99.9% gone. (and in fact, I think 100% - I think it's just lifter tick that I hear after that) anyway, here are the details:

It's an 88 5.0 with stock 5 spd trans.

This was the first time I started it after adjusting the clutch with a firewall adjustable quadrant. the clutch wasn't engaging with my foot totally off the pedal, so I screwed the quadrant in until it did.

The engine was just rebuilt by me. the flywheel was resurfaced and balanced by a machine shop. I installed a brand new King Cobra clutch kit, with new bearings.
We tried to jack up the car, put it in 1st, and let the clutch out. Same thing, it knocked/scraped when the clutch was let out, regardless of the gear. When the clutch was in, it seems to go away completely.
I really don't want to pull the trans/engine again!! I can't figure it out .
Please help! Someone has to know what this could be. I did search, and the results were spotty at best. Thanks!!!!!

How can I tell if it's defective?

It does it regardless of gear-neutral included, so it's definitely no further back than the trans. I put the car up on stands and actually tried it in gear. I did look under the car. I removed the clutch cable dust shield, but couldn't see anything unusual. Any time the clutch is out, basically.

yeah, at this point I don't want to drive it- I don't want to damage anything further.

You sure man? I mean I don't know if that would make THAT kind of racket..
Turn it in or out?

I pulled the tranny, found the problem, (the clutch was rubbing on the bellhousing) dremeled out the bellhousing enough for clearance, got it back togehter, got it running today, and took it for a drive. It boosted to the stock wastegate's levels- 8 PSI ish.. It M O V E S. but.. then.. I saw coolant coming from the crack between the hood and the fender. I drove it MAYBE 5 miles, and something's wrong. It took me 4 hours to get it home (Thanks Dave L for the assistance in towing me). Now it seems that there's coolant coming from the cracks in between my turbo piping. My breather on my valve cover (when I crank over the motor) lets out some smoke/steam- not sure if this is normal. I don't want to hear the head gaskets are blown- I just put these on. I did use that copper spray, I used ARP head bolts, and was running at 8 deg initial timing, with 93 octane. I can't believe I blew a HG after 5 miles? Anyway, I towed it home, threw the battery charger on it, and came inside, disgusted, looking for a cold beer. Cry Angry! **** ****! Pissed! Is there something that could possibly be wrong that DOESN'T involve the HEAD GASKETS???? What did I do wrong??? I boosted for MAYBE 10 seconds??!?!!? I got it to.. well, ok, like 100 but.. I only boosted for a little bit??? Anybody have any suggestions?? Do I need to pull the heads?
Here's what I plan on doing next: (of course, I've had a few as of now, and have been home from this fiasco for MAYBE two hours)

Do a comp test, checking the plugs as I go. If it looks bad, order new hg's and slap them on. If that's the case, what'd I do wrong? I don't get it? Its not like I'm boosting 15 psi, it was a very safe 8 PSI.. with 8 deg initial timing? Please help. This stinks. I really want my car.