Hi Chid,
As there is no blockage, the breather should cope with the normal amount of crankcase fumes. Unfortunately, Dragonflies that still have the original split skirt pistons can suffer from excess crankcase pressure. When worked hard, the original pistons tended to collapse, resulting in the ring grooves taking on a wavy form, causing the rings to jam and not seal correctly. When this happens, it is usually accompanied by smoke from the exhaust. The easiest remedy is to fit pistons from the earlier Mark series engines, or the repro pistons available from the LDMCC.
At this stage, my advice would be to cure the leaks at the grommet and cylinder heads (these are known common faults), and run the bike again to check whether there is any other leakage.
Regards,
Eddie.