I am glad to hear experts talk. I do not have much knowledge about engines except how the IC engine works; but 2 stroke/4 stroke is going a little deep for me. However, I like to hear you folks talk about alternate fuels and TDC and BDC concepts. I had to work on a CNG timing kit a while back, though this was totally in hardware; no microcontroller.

From your concept Chris, I think Bill has suggested right. You need to use the PICs interrupt capability to get it to respond to the magneto pulses reliably. If you sense in a loop (Polling) you may miss pulses now and then and lead to major knocks in the engine (perhaps, since you are talking H2)

As for catching the 2.5V on signal, it will be a bit out of spec for the PIC if it drifts up / down. I suggest you to level shift the signal if you can before giving it to the PIC.

Off hand I do not have any snippets / links to offer, but I know every bit / byte matters.

Cheers
Jerson