Originally Posted by Nougat
Look on the inside of the cover. The three pins that the clutch plate drives may be grinding against the cover. You can add another gasket for some more clearance, or dremel down the inside of the cover a little.
To get that dust out, I'd spray a little brake cleaner on a rag and wipe it out, rather than spraying the brake cleaner directly in.
Aha! I can't believe I didn't see that. It actually seems that the single brass screw holding the flower nut is rubbing. When the clutch is pulled in the plate moves outards. It seems to have dug in a mm or so. It's a relief to know what caused that. I think I will Dremel it a bit, shouldn't take much. Thanks Nougat.