Thankyou – yes I see it now. That drilling won’t stop the cylinder filling with condensate when it is still cold. Most of the condensation happens in the cylinder, not the pipe, until it warms up and runs properly. That is true of more or less any steam-engine, even in full-size.
Really, there is not much you can do on an oscillating-cylinder engine to help, but you could try putting a little drain-valve down-stream of the exhaust-port of the valve-face so the condensate can be removed cleanly until the engine is hot enough to run smoothly. You then close the drain-valve.
It is still likely that you will have to help the engine to start, by giving the flywheel a push round each time the water in the cylinder stops it, but it should soon reach its running temperature and then run smoothly. During this process, don’t be surprised if the water escapes by pushing the cylinder away from the valve-face slightly.
When I was a boy I had a “Mamod” model oscillating-cylinder engine, and that behaved in just the same way!
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Your photo and sketch seems to show the steam-pipe enters the engine by being soldered in place. It is better to use a union there (larger engines have a bolted flange) to make any future repairs easier.
I’d also recommend you fit some way of lubricating the cylinder and valve-face. A simple way is to put a little screwed plug in the valve-block so you can put in a few drops of oil before steaming it.