It turned out that a 5 minute job with the angle grinder filed the top down enough so the clutch slides along the keys freely now. And yes, they both have roll pins installed.

[Linked Image from i14.photobucket.com]

In the above picture, I have laid out the axle components as I took them apart. According to the Red Roo manual, the round shim goes in between the sprocket and DOG clutch. I fitted it as they said, and the clutch and sprocket don't lock. Is that how it is meant to be installed?