Oh boy Paul, you're really being thrown through the wringer on this one (no pun intended).
If I were in your shoes, I'll pull the trans and basket drive out. Since you've gone through everything, pulling it out will be a cinch.
First off, swap the wig wag from the '67 Whirlpool. Secondly, take an afternoon to tear the basket drive apart. It really isn't too difficult - the worst part is getting the set screw back into the hole in the spin tube. I used Robert's '57 Kenmore rebuild as a reference while rebuilding a basket drive recently. I'll post photos hopefully in the next few days as I had to go the extra step of pressing a new bearing into the pulley.
Inspect the bearing on the spin pulley. If it looks anything like this.... then, yeah. That's bad. If it is, hopefully the spin tube isn't scored too badly. If the bearing looks good (when they are new they would look like the spin tube bearings), then reuse it.
Depending on which pulley you use (original one or a donor one), clean all the parts, lubricate the bearing and the trust washers with some 3 in 1 Motor oil, put the basket drive back together, and throw the trans back in the washer. You can do a try test with no water to see if you still have a squeak.
The only catch to all of this is that you've already swapped to the smaller pulley size. You may need to swap back depending on the condition of the spin pulley bearing (eek!).
Good luck my friend!
Ben
