Great news! I have a similar model and it really is a fine machine. FWIW, it took me a bit of head scratching as well to find that screw on the blind stitch knob.
It sounds like by oiling the mechanism you got the clutch mechanism to work. Nothing unusual about the mechanism getting stuck in one position or the other. A combination of getting the washer in the right position and oiling often does the trick. On some machines where the mechanism was sticky, I've also had trouble getting the handwheels off because they were stuck to the shaft. I've found that cleaning the shaft and the inner bushing of the handwheel with a green abrasive pad that one gets on dish sponges works.