Ok i asked about the spark plugs because a white spark plug could also mean wrong plug number (too "hot"), as well as the mixture being too lean.
Which groove (from blunt end of needle) is the c-clip at ?
I have an 02 dragstar too and i installed a dynojet stage 1 kit as per instructions, but still got the small backfires like you have. So i moved the c-clip from groove 3 to groove 4, and it stopped the backfire.
PMS was at 3 turns too.
It is better to run too rich than too lean.
Lowering the tone since 1969