Joe thanks for the comments.
I took apart the tension unit again, and turned the tension disks around. Both sides of them look the same, except for some small writing, but I figured what the heck, I'll change it anyway. The first time I put it back together I think I may not have had the spring correct, because when I looked at it a second time it didn't seem right. Anyway, I put it back together and now the straight stitch and the zig zag work without skipping. Plus, the thread doesn't bunch up anymore!
However the decorative stitches don't work like they should. The cam stack isn't sparkly clean, but I have cleaned the majority of the gunk off. It's definitely oiled up, but I will inspect the arms in each position and see if they are not engaging fully.
My grandmother definitely used the decorative stitches on the machine. My mother has told me about all of the beautiful things she used to make, so I know the machine was well used, and loved. My mom did tell me that my grandmother had the machine serviced by a guy who did a house visit, I imagine he was the one who put the washer in the tensioner in backwords. I don't think my grandmother is the kind of person who would have tried to service her own machine. It makes me wonder if he did anything else incorrectly. When she had it serviced the last time, she was getting older and didn't sew anymore, so if it wasn't working correctly she wouldn't have known.