if your not getting consistant readings id say you dont have a great seal on the tester. But then again could mean you fried the rings, hard to say. Im with cliff on seems like detonation on that one cylinder anyway.

 

if your not confident in your test results, id pay someone to do it over pulling the head off blind....IMO

 

sounds like the knock is coming from the bottom end, i can hear it under the car. what would that be?

 

If you hear a knock from the bottom end could be a rod bearing or main bearing, I would stop running it, the longer you run the more damage you're doing. I would drain the oil and look for metal or flakes or other stuff in it, a sure sign of a spun bearing.

 

Mostly bad--as in "blown engine", most likely one or more rod bearings and/or/maybe wrist pins...

Engines can be in surprisingly bad shape and still start and idle pretty smoothly; I have been often surprised by that--but the bottom-end knocking and lack of power means something is quite wrong, and as smythge said it will not be getting any better the more you run it.