engine tapping

I bought a 1989 yamaha 90 hp outboard. The compression is 120 lbs. The engine runs great. When on the hose it real quiet but in the water at ilde 800rpm it has a slight tap. If i bring it up to 1200rpm it goes away. If I advance the timing it goes away. The timimg is set at 7 degrees ATDS at idle and 25 BTDS at full throttle. Thats what the book calls for.
Why is it ATDS at idle?
Is the nosie coming from bearing that is going bad?

[boats.net]

If you think the noise is coming from engine it could be a bad bearing or piston slap.