Welcome to the board...I have done restoration on the CM400's. If I understand correctly, it sounds like you may have some missing bearings in the steering head there. Should not be that loose at all. There are bearings and races in the top and bottom of that triple tree as it is called. The tree is what the bars mount too.
I wonder if the surge situation could be clutch slippage?
Yes, you can adjust the chain by the rear tension bolts unless the previous owner put something else on there. Adjust the chain to 3/4 inches play at the center. I have attached a pic of the chain tension bolt on my 80CM400E. To do the chain you have to loosen the rear axle nut on the right side first. Then turn the 2 rear tensioner bolts slowly and evenly to keep the rear wheel straight. Once you have the 3/4 in play at the center of the chain tighten the lock nuts and tighten the axle nut. If those sprockets are worn you may have the chain go slack, tight, slack, tight, etc. as you spin the wheel. If that happens you may have rusted chain connections and will need to replace the chain and both sprockets. This should give you some direction. You can click the pic to enlarge it.