Yes definitely a setup issue. Something weird with the shaft bushing and shaft engagement in gear was going on here. Or internal clearances. .004 is the minimum gear clearance. Make sure to check that when it goes back together.

I have been using the same Milodon system for years and several block combos and never had an issue like that.

I always give it the "finger twist" with my priming shaft to make sure everything in the pump is happy before I prelube it too.