We had a conversation on the "old" Red Square site about this same issue. As I remember, there was debate as to if it was a mechanical issue bogging the engine or an electrical issue just shutting down the ignition circuit. In your instance, and in my opinion, the white smoke is the show stopper here. It is the most significant issue you currently have on the tractor and you probably should not consider mowing with it until your "bug fogger" turns back into a tractor once again.
So here is what I remember as the highlights from that discussion (maybe someone can point that post or even the owner of that tractor could chime in - for the life of me I can not remember how that one was resolved).
Eliminate the mechanical part of the argument by disconnecting any belts from the PTO bell. Make sure the PTO bell spins freely when the PTO lever is not engaged. Restart the engine and engage the PTO lever. With nothing to MECHANICALLY bog the engine down, the engine should continue to run. If the engine dies, I would say the issue is the ignition system being shut down. I'll take a look at the schematics for your particular tractor and get back to you later this morning. If you have the opportunity, I would have you disconnect the kill wire from the magneto, run the engine, engage he PTO and see if the engine stills runs. Yes? Then reconnect the kill wire to kill the engine. Attach the mower belt back to the PTO bell, remove the kill wire, restart the engine and engage the PTO. Still running? Yes ? Then we have a safety switch / wiring issue.
I'll post later regarding additional checks.