Re: Rear sprocket/rag joint position.
Ha, I know now exactly what you all are saying. I took a Dremel tool with a grind stone and reamed out the sprocket hole just enough. The Dremel worked great. And yes the brake arm hit the sprocket bolt heads after the cap went through. I simply took out the washers under the bolt heads and that did the trick as it gave more clearance. However, I am going to bend it out just a little more for safety sakes so I know the arm won't hit the bolt heads ever.
I have the hub, sprocket all together and mounted back on the bike and I hand pedaled it around and it seems ok. Just a little wobble on the sprocket I'll have to mess with to get perfect. At least now I know what's going on.