So the generator works fine in every aspect except when the throttle is set to automatic (the idle goes low until power is on demand and then the engine should rev up accordeing to the demand of the electrical load) and there is a load applied on the electrical output (120v). When the throttle automation is turned 'off' and the idle goes way up and stays there, the generator works fine and runs my drill just fine.
With it set to automatic and the drill turned on the engine dies instantly like the kill switch had been flipped, not like a carb was overloaded or an engine problem. It sounds just like when I turn the engine switch off and the motor loses spark?
Any help would be appreciated.

 

Watch the throttle shaft on the carb when you apply a load. Does it rotate to rev up the engine when the load is applied? Can you reach it and manually open it to rev it without applying a load? I think there may be a restriction in the carb and it gets enough fuel through the idle circuit, but as soon as it opens to rev the engine up, it dies instead. Another common reason for engine dying is low oil level.