This engine was a couple hundred mi into a fresh rebuild before I discovered this. Oh well! After seeing your post I now assume things were not quite right with it to begin with. Also, a good practice is to tighten that screw which holds the gear in place using a hammer and punch. Most my issues have been that screw loosening which results in a loud screeching sound from the screw in contact with the backside of the cover. All kinds of food for thought here. Thanks crassius! http://motorbicycling.com/album.php?albumid=1645&pictureid=9717
I just had the exact same failure. The engine is two weeks old, but I rarely have time to ride. The small gear looks like it's made from sintered metal.