I was one of the first people to use the 123 ignition on a Z and I have been running this setup since 2015. I concur that the setup and install instructions are lacking and I too experienced an advanced timing situation after the initial "LED Install" procedure but unfortunately did not realize this for quite some time so I was running more advanced that I originally thought. Fortunately nothing catastrophic happened to my engine and I was able to correct this by checking the initial settings with a timing light. Although the 123 people indicated in their emails to the OP that timing should always be checked with a light, I have not seen that written in any of their instructions although it is possible that I might have missed it.
One other issue that I have had with the 123 ignition is that periodically my car will refuse to start or it does start but does not run correctly (misfires) and the only thing that solves the issue is to replace the rotor. I was never able to completely figure out the cause of this or why the rotor just seemed to randomly "go bad" until I read through this thread and subsequently did some additional research.
As it turns out, I also run an MSD with my ignition and when I was first considering the 123 distributor, I found a warning on their website that said not to use the 123 system with an MSD ignition. I did not understand the engineering reasoning behind this so I contacted the company directly to find out a little more. Their engineers told me that they already had customers using their product with an MSD with no issues being reported and so they really didn't seem to know why that warning was there. They basically told me that it should work without issues.
Well fast forward to today and after a little more research I found the root cause of the problem. I happened to stumble on a Triumph TR site where the OP had a similar problem on a 123 ignition although in this case the rotor was actually burned. This led me to another thread on a forum called Pelican Parts and they apparently specialize in parts for older European cars. Well as it turns out, the engineers at 123 chose a readily available, off the shelf distributor where they could house their electronics and just change the drive mechanism to work with numerous different cars. So the cap and rotor, and I suspect even the dizzy body itself was very widely used in VW's, BMW's, Volvo's, etc of the late 60's going through the early 80's. Well during this time, the EU apparently was focused on RFI suppression in newer cars and mandated that auto electronics include RFI suppression hardware. I do not know exactly when this was mandated but I believe it was sometime in the 70's. Well believe it or not this mandate resulted in the inclusion of a resistor in the distributor rotor that sits between the center contact and the end contact. What I learned from the Pelican Parts forum (where a lot of these guys use this same cap and rotor setup as the 123 ignition as that's what the car originally came with) but they have also upgraded to MSD. Unfortunately these rotors with the internal resistors were designed and used at a time when ignition systems were not as powerful as today's systems, including MSD, and so the higher output power of the MSD essentially burns out the resistors over time.
I must admit that I thought this seemed rather absurd as I had never heard of such a thing, but I happened to have a number of rotors that had "gone bad" so I decided to do my own checking. Well sure enough when I checked continuity between the center and end conductors, it was a total open! I really couldn't believe what I was seeing so I used a Dremel to cut away at the epoxy and sure enough buried under the epoxy and between the 2 conductors was a burned out resistor. The solution that I also found on the Pelican Parts forum was the Dremel out the epoxy and resistor and simply solder in a 12 gauge piece of wire to replace the resistor, and then simply use JB weld or some other suitable epoxy to seal it back up. You can find more info about this here:
http://forums.pelicanparts.com/porsche-911-technical-forum/596559-msd-rotor-modification-detail.html
Ironically, 123 Ignition now also sells a modified rotor that replaces the resistor with a wire:
https://123ignitionusa.com/oem-rotor-modified-no-resistor-for-all-4-and-6-cyl-123-applications/
$45 for a rotor seemed a little excessive to me so I purchased a couple of Bosch rotors (p/n 04008) and did the mod myself. A little tedious but definitely better than paying $45.
So after 4+ years of dealing with this random problem I believe it is finally solved. I will also say that despite some of the startup issues that I and others have had with the 123 system, I am very satisfied with the end result and would not hesitate to use this again. Fortunately my experience with the company and the product was a little more positive than the OP. I hope this helps others that may have experienced the same issue and that I've saved you from pulling your hair out as well.
Mike.