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FIXED IT! :D
The tab set arm that sets the tab teeth, was UNDERNEATH the entire tab teeth bar. It was casuing the entire carriage to grind. I had to take off the back cover to bend it back. I wonder how it got like that in the first place.
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Glad you figured it out. For my problem with it grinding on the tab rack I used a small rat-tail file and enlarged (elongated) the mounting hole on one of the tab rack mounting brackets. I couldn't see any other way of getting about 1/16th inch of extra clearance. And it worked for me.