Disclaimer first.
I've never messed with one of these radios, but i wonder if someone would be willing to try an experiment for me in an attempt to help this issue.
(this would do nothing for a narrow receiver issue if that's the actual problem)
Turn the radio on in AM mode with nothing connected to the antenna jack.
turn the volume up to a normal listening level or just higher than that. Squelch down and RF gain all the way up.
how does it sound?
does it sound like there is a lot of hiss coming through the speaker?
like white noise?
if so, adjust T1 slightly just until the receiver quiets down.
now check sensitivity with your sig gen.
can you still hear the tone slightly when under 1uV?
if so, try connecting the radio to your antenna again and see if the performance has improved.
if it's not obvious, im wondering if the first RF amp is overloading later stages.
LC