Arthur, whatever it is, I think it's in the flywheel/clutch assembly. The clutch is not disengaging or if it is, the input shaft is still being spun by the motor. Some ideas, possibly a very tight pilot bushing? Can a clutch disk that's reversed cause this? Or one that got bent during the tranny installation? Just throwing ideas out here. First I would try adjusting the clutch linkage even further, to get maximum push on the clutch fork, and see if that helps. If you chock the tires real well, put it in high gear with the motor off, push in the clutch and bump the starter, will the engine turn over or start, or does it refuse to spin over? Or better yet, try that with the distributor coil wire unhooked for safety's sake.
Norm I know what you mean about the rust. Especially if the fresh metal got handled with bare hands.