I will have another go, but I believe it installed correctly.
You see, originally I started with two engines. The 500 and the 550. Using the 550 cases I of course had to go with the 550 gearbox and clutch. No problem.
Stupidly, but before it ever turned a wheel, I had the miss match of parts in there, and quickly realized (same photo story as you Scott), that something wasn't right.
Ordered the correct mechanism, featuring the same wheels and stay arms as you have pictured and installed.
Now. When I rode the bike in it's 500 miles of breaking in a 3am so I didn't have to stop/start, once temp built up, I could not shift down from 3rd, just as you have described. After I played with it again last night, I could not statically get it up to second, like it wont grab the dowels on the shift drum.
Thinking about it all day like a crazy person, logic tells me that it might not be the forks/selectors incorrectly set up. How could I ride in 5th, shift down to 3rd and when cold get it back down again?
I'm a bit stumped. I'll check again. But I'm freaking.