I tried to install a inline fuel filter because my tank shows a little rust in it, and I just had my carbs rebuilt. Does this have to be straight up and down because the bike would not run with it laying sideways?

It shouldn't make a difference as long as the hoses aren't kinked.

The bike would not start at all, I unbolted the gas tank so I could hold the filter semi vertical and she tried to run as best she could. Then when I took the filter off, she ran fine.

are you sure the filter was installed with the correct flow direction?, it could be that there is some shi*e in your fuel tap and the filter is restricting the flow to the carbs.

Is the Fuel pump working correctly as it should pump the fuel, thus pulling it from the tank to the carbs. I had lots of problems with my fuel pump and ended up ditching it. I now run a gravity feed with in-line filter(on its side under tank) and dont have any problems.

Adam.