Four possible sources for a vertical motion as you describe.
Standard internal radial clearance of the ball bearing itself on that side (very very small movement). There is a check spec for the ball bearing itself from the bearing mgf and I think the test v block specs in Clymers should reflect the wear limit for the same item.
Broken ball race cage in that bearing, allowing the balls to move to the sides thus permitting the crank to move up/down more than the standard internal radial clearance of the ball bearing itself.
Ball bearing pocket mis-machined (oversized) allowing entire bearing outer race to go up down.
Wrong bearing (ID or OD)
Every time the crank counterweight rolls up or down that motion is gonna take place -- this would be in time with the sharp knock sound you were doing at the Dragon. The noise will increase as the room to move slowly increases.
Here are the faces of the Dragon folks listening to Dave's knock .... Once you stuffed rags into his pretty loud muffler to shut it up you could really clearly hear the sharp knock even at idle speed.