[tbone]

The headphone jacks are a good test point, but the issue here is that you can't hear how weak the signal is, and how much it increases as the tuning peaks. 3.5 VAC seems high and seems to indicate you are using too much signal. You could turn on the speaker and listen to the signal and switch back, but I always find it best to measure and hear what you are doing. With a weak signal the volume won't be that loud.

As far as the caps go, without knowing what values were in there it becomes an experiment. Nothing wrong with using what you have to find what works, but then I would install permanent mica caps.

If the sig gen has an internal modulation tone, that would be fine.