Thanks BB - that makes a lot of sense. Before doing the strip down it wasn't possible to disengage the reel, it was always engaged regardless of what position the clutch lever was in. I thought it was the cork, so I replaced that - however on reflection the cork might have been worn, but wasn't irregular or have any high spots.
I will order a new clutch drive shaft (I assume this is the same as the transfer shaft, just a different name).
Thanks for the advice!