1) An inch of play is way too much (even assuming you mean +/- 1/2" for a total travel of 1"). Although it may be tight on the pulling side at the moment, the slack will cause the cam to advance ahead of the crank then stop, then when the crank catches up again it will jerk it forward. This will explain your wandering timing mark as well as the crappy performance. One cause for a stretched chain (even a new one) is lack of lubrication. Did you coat it with engine lube when you installed it? I also drill a tiny hole in one of the oil galley plugs so that it sprays a mist on the chain. This isn't necessary for a street car, but it's cheap insurance.
2) The best way to check for TDC is to rotate the crank until the #1 piston hits a stop from both directions. The center of the two marks (on the harmonic balancer) is TDC. Once that is determined you can time the cam to the crank. Alternatively you could use a dial gage, but for most people a stop is easy to fabricate and the results are easy to see. Since the cam timing events are being driven by the chain, and are subject to the relative position of the crank gear to the cam gear, there is no way to use the valve timing events to determine TDC.