Problem fixed. Arms East didn't do anything to the rifle as they claimed it fed factory ammo fine. That was only true with FMJ surplus and Federal Fusion but I wasn't in the mood for an argument. They returned by rifle promptly after they received it and I'm grateful for that.
I ordered a Faxon Big Gunner 18.6" from CTCS during their Canada Day sale and it solved all my feeding issues. It digested everything I threw at it: surplus, factory, reloads, soft points, tipped bullets and VLDs bullets. Some bullets still kiss the barrel's edge on their way in but since the barrel has a proper feed cone they don't get jammed in there.
The barrel extension was sized perfectly and slid into the receiver with zero play. No shims or Loctite needed. The barrel nut Stag uses on their Lev2 hand guards is very easy to deal with as it doesn't have any teeth that need to be aligned with the gas tube. It uses a standard 1 3/8" wrench, no special tools needed.
An added bonus is the Faxon shaved a whole pound in weight from the barrel, much appreciated as this will be a hunting rifle. 3 lbs 3.2 oz for the Stag barrel and 2 lbs 2.8 oz for the 18.6" Faxon Big Gunner. Not bad at all. Further weight savings from a pencil barrel would be negligible.
I reused the same gas block and tube from the Stag build. Yes, it's true, the Faxon barrels have a gas port that's 1/4" further ahead on the barrel than the stag barrel. However, the system was still perfectly gassed. All my brass ended up in a neat little pile about 10 feet away at the 4.5 o'clock position. If anything, it felt the system had more gas as my brass was hitting the deflector with more intensity, leaving small sings on the cases. Maybe the Lev2 rifles have a longer gas tube than previous generations?
As for accuracy, It looks like the Faxon doesn't do very well with VLD bullets seated at mag length. Looks like I'll have to try some hybrid bullets or bullet designs that are less sensitive to seating depth.
So all in all I'm very happy with the rifle now. Sure needing a new barrel on a brand new rifle was a bit of a disappointment but at least the rifle as a whole pound lighter now.