Finally! Got the clutch housing off with a spanner wrench and breaker bar. The gears look good and the axle also appears to be straight. The middle gear bearing is missing on bearing (they are rods not balls) and there is play in the axle (see video link below. The axel bearing spins freely but the play bothers me and is a problem I suspect. The bearings on the outside of the axle bearings are ball bearings and they look pretty good. It's pretty clean in there for a bike this old. Hopefully the video shows the play in the axle and that's the problem since I don't want to tear this apart without fixing the issue.
Not sure if you can see the play in the axle but it's about 1/8" at the end when I push it back and forth. Guessing that's the problem. The axle seats in nice and tight so the play is in the bearing itself.