If the valves were operating correctly, I'm guessing the carb stuck open and was letting fuel constantly drain into the cylinder. Imagine how good your bike is going to run if you fix the carb?

 

even if the float needle fell off the float and let gas poor in it would fill the WHOLE cylinder with gas though would it? its a vacuum petcock and will not allow fuel to the carbs without the bike on...only way i see it is that that spark plug is shot and fuel goes in and just doesnt ignite.

 

The gas would either blow past the rings or be forced out through the exhaust valves long before the cylinder would fill up and cause the fuel level to be at the intake like the picture shows. (and perhaps the gasket on the gas cap isn't sealing correctly?) Also, if the cylinder was that filled with liquid you would most likely break a rod or somehow F up your engine otherwise as the liquid will not compress.

 

Im pretty sure it was never running that way. It ran fine and I shut it off and brought it inside, after awhile gas started dripping out.