Hondaman, first I want to thank you for the advice and helping me understand how the clutch operates.
I wanted to give you and whoever else is following this an update. I would like to preface this with that I was close to grown man weeping after what occurred and for those faint of heart I would suggest looking away.
So I take apart the clutch (for what feels like the 10th time) and I rearrange the clutch friction plates, double plate and metal plates as described above. everything is packed in tight. I ratchet down the lifter plate until it is nice and snug. Then bolt together the clutch housing.
I attach the clutch cable and start the adjustments. I have to take it to its limits again but I am FINALLY able to get the bike to go into 1st. Which is a huge improvement to not being able to get it to do anything. The problem now is that once in first it lurches forward instantly. No good.
So I think to myself that I am moving into the right direction and with a little more adjustment room I can get this thing where it needs to be. So I pull everything apart yet again. I sit back and look at everything and notice that the hole that the adjustment peg pushes into is pretty deep... deep enough to fit a very small nut that would allow the peg to start applying pressure earlier. So I put the nut in and try to screw the clutch case back on. It wont go on... the nut is TOO much and I can't even get the housing back on. So I pry the nut out and start thinking of something smaller. Well I had some stainless steel ties from the exhaust wrap. So I bend those over and over to form a piece that is basically 50% of the size of the nut I put in. So I place that in the hole and bolt everything back up again.
I start to do my adjustments. I can feel it getting pressure earlier! Excitement is starting to build. I pull in the clutch lever and the bike goes into 1st and back to neutral with ease! I run and grab my helmet and hop on the bike. I start it up and let the bike idle for awhile so it was warm and ready to go. So I go to pull in the clutch and drop into first and as I pull I hear "CRACK CRACK CRACK CRACK" and all the pressure in the clutch lever goes away and I am left with a limp lever. I also feel something hit me in the side of the leg really hard.
I get off my bike and this is what I see:
If you look at the last picture in the tunnel where you feed the clutch cable a bit of metal is missing. I did that on accident and it took a chip out a few weeks back. It seems that was the point of failure for the entire clutch housing. This then continued up to the top left of the clutch housing.
I am so defeated. Oh the thing that hit me in the leg was the lock bolt that was holding onto the adjuster. I guess as the metal crumpled outwards it forced the lock nut off the adjuster.
Is this something that has ever happened to anyone? Did I do something obviously wrong? Is it believable that such a small chip in the clutch case housing could cause this kind of failure?
My plan is to take a week off from the bike and step back from it. Spend that time to source another clutch case housing and probably the rest of the clutch parts just in case I have another failure of some sort (lifter plate crack).
Thanks for the help... its time for a few beers.