Could be that the blanker is just aligned wrong. A radio that old has likely been tweaked by someone who doesn't know just what each tuning slug is for. L1 and L2 are peaked using a 23.5 MHz signal from the signal generator. Can't be done by tweaking a slug while watching the S-meter. Takes a 'scope probe on a test point.
The Realistic TRC-449 uses the same circuit board. Same alignment procedure.
It's on page 17 of the service manual here:
https://cbtricks.org/radios/realistic/trc_449/graphics/realistic_trc_449_sm.pdf
There were two versions of the noise blanker in those radios. Only the first version of the blanker is covered in that manual. The later one has a "high rise" pc board just to the right of L2. Never have seen a diagram for that version.
Naturally this radio is old enough to benefit from being recapped. The blanker circuit contains only one electrolytic cap, C605 a 0.1uf part. I'm not convinced it's causing your distortion problem. If sideband receive audio sounds okay with the blanker turned off, a capacitor is probably not the culprit. A kit of electrolytic caps for that radio contains 36 of them, if memory serves.
A radio with 500 original miles might not have any bad ones in it.
Yet. But operating stresses will remind them how old they are before long. And a high-mileage radio is bound to have several that no longer meet performance specs.
Not a matter of if but of when.
73
