I once saw a steel ball used as a spacer, it lived between the clutch push rod and the adjustment stud on the basket. maybe you lost your steel ball?

 

The bolt sleeves are loose so maybe thats one place to start. Thanks for the tip. I didn't want to have to tear the whole thing apart again but its looking like I may have to. If the key came out of the slot, could that cause the clutch to not disengage? How do I move this thread to the EVO section?

 

What do you mean by loose? they will flex a little but are they spinning?
Sounds like you're on the right track.
If the key came out of the slot it normally would jam up between the clutch basket and trans shaft seal making the clutch assembly sit crooked on the shaft & wobble when rotating. If it just fell out you should find it in the primary.

Hope this helps, I just put a new basket in my 84 shovel. It has the same diaphram setup you have. Cost $200 for the basket if you messed up one of those sleeves.

 

Ask one of the moderators to do it for you.

Also make sure the spring thing is centered on the clutch and the bolts that hold it together are properly aligned within the slots. Make sure that there are two pushtubes going through the input shaft. Also you need to check the .010 measurement on the spring. Don't forget the 3/4 in. setup on the arm. This is sort of difficult, I made a massive feeler gauge out of a piece of flat steel, actually a rafter tie in plate. Setup the adjuster tighten until all slack is out then back out 1/2 to 3/4 turn.

 

I had the bike out today for a quick ride and everything seemed fine. It shifted good through the gears so the clutch is working. It started pulling away the first time I put it in 1st gear with the clutch in but after that it did not move with the clutch pulled in and going into 1st. I guess I was looking too much into things. Either way, its working fine. Thanks for all the advice, it was a big help!