Middle of the sight glass while it is not running (EDIT: With the bike vertical, not on the side stand)
Also, I didn't forget the valve lash. I just wanted to give somebody else a chance to throw forth some knowledge... I swear!
As far as the valve lash. Set it now. That waiting until break in is a bad idea. Why? Because as the engine breaks in the valve stems stretch a bit, so that means less clearance. Your red exhaust pipe and idle/running issues are likely being caused by one or both valves not seating fully.
Set the lash on the loose side, sau .004 inch. ntake and exhaust, and after a couple hundred miles check the lash. Adjust if needed, then go another couple hundred and check it again. At that point you can set the lash a bit tighter, minimum is .002inch. I have mine set at .002 intake and .003 exhaust currently. In the hotter months I go to .003 intake and .004 exhaust