The stitch selector is probably gummed up. When you flip the lever, the part below it should rock side to side, and the lever should snap loudly into position. If it isn't, you need to un-gum it. I'm talking about the lever to the right of the one in the third picture. I personally use WD-40 on this part at least every week at work, and it works awesome. I know using WD-40 offends some people, but I have never had it make things worse or have it hurt anything. However, you want to blow it out with an air compressor, or a full can of canned air. I have a blog post about how to do it, but can't post it on here, or it will just get deleted.
Yes! You did get a screamin' deal! And the camstack gear looks good. Keep the cabinet, and you'll still get $300 -- $400 for the machine by itself.