Daniel G - are you mixing up engaged and dis-engaged? The PTO clutch is dis-engaged when the lever with the fiber button is against the PTO center button putting pressure on the PTO spring so the pulley is not being turned by the crankshaft. The PTO clutch is engaged when the fiber button on the lever is not touching the PTO clutch center button which means the spring is in the release position and the pulley is being rotated by the crankshaft.
You mention "should the throwout levers be a bit loose when disengaged?" but I think you mean when the clutch is engaged - if so, it sounds to me like you have mis-adjusted the spring tension with the measuring tool provided in rebuild kit, or maybe there is a problem with the spring. You set the spring tension by tightening the first nut on each of the special screws, and you have to adjust them evenly and measure the spring tension with the tool in all 3 spring lever positions on the front of the PTO. If you get one mis-matched (to loose or to tight) the spring pressure will be uneven, and at least one of the spring levers will likely be loose, which could result in erratic clutch operation, scraping noise, wobbling rotation, etc. If you could post some pics we might be able to see something incorrect or the problem.
Dennis - if you don't burn enough gas it's harder to smell those Kohler fumes, and I'm addicted to'm. In Bill J's case, he can set the tractor speed a little faster and have his brother walk a little faster while he's getting seat time on the tractor - but keeping her in the straight and narrow. (Truth be told Dennis, I understand ya, and ya more than likely don't need that 3rd hand with a gear drive, especially since you can feather that pedal under your left foot to adjust your speed as well - which don't work on a Hydro, it only slows you down and you have to use your 3rd hand to push the speed control lever to speed up again.
Bill - just use a GD, and for _ _ _ sake, don't let any of the mist come back over the tractor and ruin what's left of your paint.