If you take the fiber gear off (remove the cir-clip with cir-clip pliers and a flat screwdriver), there's a spring and some grease under there. The locating pin from the fiber gear goes in one of the spring ends (round hole) you can tell which by the lack of grease. When it's properly assembled, you'll feel that spring and snap action that you do when you turn the fiber gear either way on a healthy handwheel.
Did that with the rescue 401 and then reassembled incorrectly. Wow that sounds horrible!
That stuff under there seems to have something to do with the lash of the fiber gear when the motor stops or starts. Maybe it's working wrong? I don't strictly understand how that part works, only the basics. I find it very strange that another wheel wouldn't fit.... I think you're in the right area... If you need, I'll disassemble again and post a couple of pics.
As for smells: Light oil is OK. Unused motor too. Any "heat smells" (I don't know if that makes sense, there are certain smells I associate with heat), or weird rubber like, etc smells would be bad, but also a clue. I'm trying to think of what could be dragging only after a few seconds of use. No change in sound of the machine other than the motor?
Rest up your shoulder. Maybe when you come back to it, something will jump out at you.