My interpretation from early on is the shafts both turn a little each way until the dogs hit the end of the slots. Does the revolve & change through each gear when all parts are seated in the left case. I reslise the main shsft is held over to the bearing in the right case when the clutch is fitted but I doubt that shaft play is very much when loosely fitted to turn the shafts. Could eyeball each gear set engaging & turning anyway. If I'm wrong just lift the mainshaft up flush with other shaft. By memory you had it all closed up & in the frame before finding this problem. Have you tried forcing it a little. Not just in gear? so it's turning the crank & all against compression. Detent ball bearing on the angle by the neutral switch holds neutral anyway providing the correct selectors are into the correct gears.

Ignore that I just looked back & answered my own questions. I guess can't be anything in the Kickstart if you haven't got that far except when you had it fully assembled, but is still doing it until cases are parted a little. Gotta be an answer 'there' as in why parting the cases fixes it.
 

I've marked up another photo showing the gears and which ones should "free wheel" unless the dogs are engaged.  

Blue are the "free wheel" gears.  

Red are the "locked" gears that are splined to the shafts. (First gear "locked" is marked as lime green and is actually machined into the clutch shaft)

All I can suggest is making sure the gears that are supposed to "free wheel" spin freely on the shaft unless dogs are engaged into that gear.  

If that passes, then assemble and try to see which dogs are engaging when it should be in neutral.  (I think you said it locked up when assembled in right case?  That indicates a possibility of two sets of dogs partially engaging at the same time.  By looking carefully, hopefully you can see the problem.

There really isn't anything "tricky" about these transmissions.  Changes were made over the years...  I'm not sure much was changed but make sure you aren't mixing up earlier CT parts with later CT parts just to be sure.  

Here is your picture assembled in right case where you said "does not turn".

The angle of the photo can distort things but this pic is good enough to make my point.  

The shift fork bushing (red line) is in the "2nd-3rd" groove in the shift drum.  When the drum rotates and the bushing moves up to the top of the groove the fork slides up and engages the dogs and you're in second gear.  Rotate the drum a little more and the bushing will drop to the bottom and you're in third gear.  



Because you should be in "neutral", that shift fork should be centered between the high and low positions in the drum groove.  It looks like the bushing is a little higher than halfway (could be an optical illusion) which means the dogs might be starting to engage second gear.  That's the kind of thing you need to look for. 

This link to another pic you posted looks like it's definitely going into second gear and is not in neutral.  imgur.com/a/51c3nZu

Last thing is wondering if you realize all the gears will always be engaged and spinning when one of the shafts is turning?  With no chain on the bike, friction might cause the sprocket to spin but there won't be any "drive" unless one set of dogs are engaged.   (More than one set of dogs engaged will lock the trans, big no-no but something has to be pretty far off, like an incorrect shift fork, for that to happen, very rare)

At this point a video that shows your exact concern is the next step.  It's possible what you think is a problem is actually "normal".  (Has happened to me MANY times, DOH!)
 

Hi Guys,

Success!!!

I ordered a trans off ebay. Compared mine to the new one and found one slight difference. In the picture below, the distance between the gear to the end of the spline is longer on the original shaft by 1 mm. Put the new assembly in and everything works like it should.

imgur.com/a/bna1YJ3

My guess is that I over tightend the sprocket.

Thanks for all your help and suggestions. I actually did learn quite a bit about the transmission.

Tsmitty

That's got me scratching my head.
I'll try not to overthink it.
Did you get a pic of both shafts side by side. I guess if it works--it works, which is good news.

Now I have to figure out how to move the spacer 1 mm so I can have a spare tranny.

Some of those drive axles have clips to stop overpress of 2nd pinion, then I noted at1 does not as indicated by parts list.  Sweger mentioned 2 types of spacers , one a shim while the other part of an embossed gear with respect to gear you are referencing distance.  

glad u got it fixed .  

There's nothing movable in the pic you showed of the shaft.
Is there a chance that big gear has been flipped over on your other shaft.
What MarkT said about the radius on the bearing has me thinking.
One mm isn't much but would be about the same as the radius.
Is there a chance the bearing has picked up on the way in & peeled off some alloy stopping it going fully home. I'm a bit confused--& being geriatric doesn't help haha.

Happy you got it working, but I'm not convinced of the "1mm" explanation being the cause.  

There is no "spacer" on the CT3 under the sprocket that can move.  That "spacer" is part of the shaft on the later models.  

I doubt 1mm would cause an issue either...  the important thing is whatever the issue you were able to get it working.