The fault is not in the P.A, the fault is in the (pre) driver where the low level AM modulation is fed into, the gain setting of that driver section is set too high overdriving the rest of the P.A. chain, and adding the distortion on the driver level.
Setting your P.A. to 25 watts does not help because the distortion is already added into the driver section, not the P.A.
The only way to set the driver gain is in the engineer menu, you can only regulate the power output of the P.A. which does not help.
That setting of the driver gain is described in the engineer menu, hence the 14.200 frequency and rest of the allignment as per Yaesu instructions.
The S7 gives you the level of drive for that driver section, when you bring that down that level will drop as well.
After you did the mod, set the mic gain in AM to 100.( using original hand microphone)
Normally the carrier is 25% of the output when fully driven with audio in AM.
But if the distortion is already there from the too high gain in the driver section, it does nothing if you set the P.A. to 25 watt carrier and the distortion just stays because it is already there driving the P.A. as i described in my post, even setting the carrier to 5 watt from the P.A. did nothing to help.
So, you need to get to the bottom of the problem, the driver section that is factory alligned with too much gain overdriving the P.A.
Whatever is send into the P.A. gets just amplified, if that is a clean signal or distorted signal, just lowering the P.A. output does not help there, the problem needs be adjusted in the section/driver that causes the distortion.
Since every transceiver is different, has stages with different gain through spread in transistor gain etc every section is adjustable in the engineer menu.
That way they can all be alligned within specs and different tansceivers will have different settings in the engineers menu for that specific transceiver, so DO NOTE DOWN ORIGINAL SETTINGS FIRST.
Never change a setting if you don't understand it's function first.
My transciever was alligned to deliver 110 to 115 watts on most bands, almost 60 watts on 2 and 55 watt on 70.
For HF i did not change anything the 2 x 100 watt Fets will have a ball with that, new higher capacity fan keeps the transceiver more cool as the original with lower noise.
I did lower the output to 50 watt on 2 and 70 though, if i need more power i wil add a P.A.
50 watts from the 70 watt FET in that P.A. i rather keep healthy.
With the scope i found the pre driver was at fault and there the AM modulation was added and distortion came from.
Now i might have just 90 to 95 Watts AM but it is clean and crisp .as it should be.
i have a Heathkit SB-1000 rebuild so if i need more power i use that one.
Don't stare yourself blind on the last 5 or 10 watts, set the driver section for the cleanest and crisp audio without distortion.
Use other good receiver to monitor your audio when doing the changes,if you don't have a scope to do that.