The heads you have are very hard to seal. O rings are the way to go as you can machine a flange into the heads to match the recess in the cylinder which will center the head in the cylinder. The stock arrangement allows for a very sloppy fit and makes accurate squish clearance impossible. With the centering step in the head you can then simply cut a groove for the o ring and you have the best situation possible.
Yamaha changed the gasket design when they made the 400. It is the same as your 250 where the gasket surrounds the head bolts. This is not needed at all for sealing the combustion chamber, but does allow for tightening the bolts without bending the head so much. On your 350, the bolts are outboard of the gasket. When you tighten the bolts, it bends the head over the gasket which causes the head to bow upwards in the center between any two bolts and thereby looses clamping pressure on the gasket. Of course the result is leaking. This gets worse using the early heads which have the inside cooling fin interrupted for the bolts, and much worse when you machine the heads making them thinner. And of course even worse when you improve the chamber and squish increasing the pressure. And of course, more torque make the problem worse, not better! So you can see you have your work cut out for you - very difficult indeed to get these heads to seal.
But with some determination and more than a bit of luck you may see success. Try this. Get a piece of glass and some #400 wet sandpaper and carefully lap the sealing surface of the heads. Probably you will easily see they are bent. Just make them flat removing as little material as possible, but don't leave a trace of a low (high) spot. Anneal the gaskets as a last step before you install them. Copper work hardens very rapidly which will happen with any cutting, filing or bending. Make sure they are perfectly flat before annealing, and don't flatten them out if they curve a bit when you anneal - let the head flatten them when you install them. After annealing, spray them on both sides with copper gasket sealer like permatex copper-coat. Let them dry, and then give them another light spray right before you install them. Torque the head bolts VERY carefully in three stages up to spec (do not exceed 20 lb-ft under any condition!!!! I think the factory spec is 16 lb-ft). Excess clamping pressure will absolutely cause the gasket to leak! Run the engine up to temp and let cool down completely and re-torque. Then take a very easy ride just long enough to bring the engine up to full temperature, let cool completely and re torque. Repeat the ride and cool down and re-torque. If the head bolts do not need additional tightening to achieve the torque value, take the bike for a long easy ride and check again. Once the torque values are maintained you should be good to go, but don't be surprised if the heads start to leak again if you ride like a madman! This tedious regimen has worked well for me on well tuned engines with the stock gasket set up - good luck!
Yamaha changed the gasket design when they made the 400. It is the same as your 250 where the gasket surrounds the head bolts. This is not needed at all for sealing the combustion chamber, but does allow for tightening the bolts without bending the head so much. On your 350, the bolts are outboard of the gasket. When you tighten the bolts, it bends the head over the gasket which causes the head to bow upwards in the center between any two bolts and thereby looses clamping pressure on the gasket. Of course the result is leaking. This gets worse using the early heads which have the inside cooling fin interrupted for the bolts, and much worse when you machine the heads making them thinner. And of course even worse when you improve the chamber and squish increasing the pressure. And of course, more torque make the problem worse, not better! So you can see you have your work cut out for you - very difficult indeed to get these heads to seal.
But with some determination and more than a bit of luck you may see success. Try this. Get a piece of glass and some #400 wet sandpaper and carefully lap the sealing surface of the heads. Probably you will easily see they are bent. Just make them flat removing as little material as possible, but don't leave a trace of a low (high) spot. Anneal the gaskets as a last step before you install them. Copper work hardens very rapidly which will happen with any cutting, filing or bending. Make sure they are perfectly flat before annealing, and don't flatten them out if they curve a bit when you anneal - let the head flatten them when you install them. After annealing, spray them on both sides with copper gasket sealer like permatex copper-coat. Let them dry, and then give them another light spray right before you install them. Torque the head bolts VERY carefully in three stages up to spec (do not exceed 20 lb-ft under any condition!!!! I think the factory spec is 16 lb-ft). Excess clamping pressure will absolutely cause the gasket to leak! Run the engine up to temp and let cool down completely and re-torque. Then take a very easy ride just long enough to bring the engine up to full temperature, let cool completely and re torque. Repeat the ride and cool down and re-torque. If the head bolts do not need additional tightening to achieve the torque value, take the bike for a long easy ride and check again. Once the torque values are maintained you should be good to go, but don't be surprised if the heads start to leak again if you ride like a madman! This tedious regimen has worked well for me on well tuned engines with the stock gasket set up - good luck!