Hard to pedal? Could you expound on that a little? Do you mean pedaling with the engine off and clutch disengaged? Or is that when you're trying to start the engine?
For wheel bearings, I recommend that you start by just greasing them. I believe the Shimano cb-E110 hub fits the same as the Cranbrook rear hub, so you can just swap the guts out and have a much higher quality rear coaster.
The best thing to do is to crawl through all the subforums and read the applicable sticky topics, read the FAQ, and watch an install video on YouTube. That can give you a real understanding of how it all works (without having to actually install it)
Loosen the chain from the motor, if you have to add a half link while your at it engage the clutch and pull the chain to feel if its binding up from the motor it should be fairly smooth. The brass screw on the clutch is how I adjust mine.
If I were a betting man, my money is on 2 stroke kit. This is based on the manual clutch you described, as I don't know of a manual clutch for a 4 stroke kit. Now, there is a 4 stoke manual clutch made by 3d motorsports, but it's highly unlikely that you have that one. Pre mix some 32:1 gas/oil and go to town. Then the real fun will start (trying to troubleshoot it every 20 miles)