The key way will have nothing to do with smoke. It will effect the running of the engine because of timing. Your crankcase breathes has to be open or you will be building up too much crankcase pressure and blow out the oil seals and yes it might smoke. I will take a guess here and say maybe the rings have seat in? Make sure your breathes are open and put some hours on the engine and see if it improves. If not I would say there is a problem with the new short block, like valve guides or cylinder walls??