Originally Posted by mapbike
Take off the cover that is over the small drive sprocket and see if th chain will sit all the way down in the teeth of the sprocket.
Is you drive chain the same width as the chain on the pedal side of the bike?
If it is you will need to do one of two things, you can order a narrower drive sprocket and replace that or what I would do is order a KMC415H Chain and be sure it is longer than the 98link chain some sell, this chain can be found on ebay and at amazon.com as well as several other places.
Hopefully its just that you need a woder chain, if so that is a simple fix.
The chain is def bigger then the normal drive side. It's more the fact the chain gets stuck inside the teeth not allowing it to release and makes chain get binded up inside the case. I've filed the ends of sprocket down and used lube, both has helped but not 100% fixed the problem