Could the tabbed washer under the stop motion/ clutch knob be installed backwards?
Something is going on, but since it turns, it isn't frozen. Since the motor works, something else is creating the bind.
I don't believe lack of oil is creating the issue...
Please let us know what the diagnosis ends up being.
This is a great model, and sews a lovely stitch. Even a repair bill of $80-$100 is worthwhile, if you can find a repair shop that reasonable.