Gotcha. Thanks guys! Learning as I go, and its been great seeing a understanding how everthing operates. I plan to know these bikes from the inside out one of these days...with the help of this forum of course!
Bryanj: Yes these motors are bullet proof but not fool proof as I suspect it was an unskilled rider that caused the problem. The dogs on countershaft 4th gear have been busted off, all of them. So as the fork pulls 4th gear into countershaft 3rd, there are no dogs to to grab it so mainshaft 3rd just spins countershaft 3rd as though you were in neutral. Im guessing someone either downshifted to 3rd at way to high rpm or tried a clutchless shift? Perhaps a combination? Anyway the motor is solid and everthing else in the gearbox looks great but Ill check the oilways ect. when I pull the primary as you suggested.
BTW This is my low budget, rat-cafe project that is going slowly but surely. Forks, carbs, and breaks have been gone through. Fenders have been cut. Engine and frame will be painted once the motors back together. Getting bars, tires (tyres), and a cafe seat made this winter. Then the tank and side covers will get paint in early spring...should be cool. Of course youll see pics...eventually.