It might be the picture but... is that belt upside down? Hard to see on my screen.
And my other idea is this the right length belt? If it was to long, that would bring the pulleys closer to the front...
The mule drive pulley(s) would typically only contact the axle when mowing uneven terrain when the axle pivots down onto the pulley(s). If you only mow a nice flat lawn, the pulleys should never contact the axle.
Here are some photos from the tiller manuals showing under side views of various mule drives:
I don't know yet,I'm waiting for the wear button. I did use a piece of plastic just so I could spin it by hand and it seemed to release ok. Great point though,I'm gonna bring it back flush soon as I figure this belt thing out