I know that myv65 will always do better than I at answering the 'why' of things, but . . .
as the quantity of liquid is the same at the inlet and outlet, it will be only the pressure and velocity that differs
reducing the outlet dia will create more resistance hence also higher pressure
reducing the inlet dia will create more resistance but the pressure relative to the impeller is negative, and if 'excessive' will induce one or more of several types of cavitation (see g_f's link)
what you need to attempt to do is to reduce this inlet flow resistance as much as possible
the 'best' solution is to submerge the pump in the res with no inlet piping at all
- failing that put the res as close to the pump inlet as possible and connect it with the largest short piece of pipe possible, w/o any fittings or reductions in the ID
no idea on the particulate corrosion 'product', sure sounds like copper
'something' is in the system, that is not normal
and you want distilled water, DI water is more reactive
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