Hello 32 Coupe,
By all means try several of the above suggestions, and you may succeed. Looks like you are up for a new key anyway, so order one in, amd in the meamtime you can make a drill guide that will take out the old key without further damage. You can probably use a heavy drift to knock that key down flat again prior to drilling.
Previous owners of my Lister VA, (aircooled 8/1) had used a huge puller on the flywheel and pulled it onto the key so that nothing would shift it. Drill was the final option. Took a piece of 14mm square key, say 2" or longer, which is a slip fit in the keyway, then measured the average thickness of a new key, (or your other old one) and found a drill of that diameter. Marked a centre line across the square end of the key then measured half the drill diameter up from the bottom of the keyway and punched a center in it. Then centered the punchmark in a 4 jaw chuck in the lathe and drilled it through with a drill round 2/3rds of the larger one. EXAMPLE, if the key was 3/8" deep, drill 1/4". You may need to make extended drills, but you can weld (arc or braze) length to them easily.
Clamp the guide firmly in the keyway and with a new sharp drill, some lube and moderate speed you will get the small drill through in good time. Then discard the guide and run the larger drill through, should be easy. Keh will be split down its length and should pry out. If not, start the motor and let it fire a few strokes at low speed. Spray a bit of lube down the drill hole. You can repeat the engine start after the key is out if the wheel is still tight. The process sounds a bit brutal, but is a surefire no damage method. Hope this helps. Combustor.
