All small engines were designed to run on unleaded fuel. A good example is a Cub Cadet Orginal. They were made early 60's.....long before unleaded fuel was the only fuel you could buy.
Interresting information on tetraethyl lead:
http://en.wikipedia.org/wiki/Tetraethyllead
I didn't see anything about tetraethyl lead being a lubricant.
Not knowing the history of the engine we can't tell what caused the problem(s).