The shaft was removed to install the bronze bushing. I did have a machine shop make me a new shaft, as the old one had a ton of wear near the top, causing excess play. I thought maybe there was an issue with new shaft, so I reinstalled the old one to test, still won't engage with the clutch brakes.
The vertical shaft isn't upside down. I know this because only the top is machined for the lever key slot.

Hi Team,
maybe disconnect the interlock linkage to determine if that is restricting the full rearward movement of the throw out collar.

Suggest to double check that the brass throw out collar is over the forward (thickest) flange on the sliding collar.

Starting to run out of ideas-- your suggestion of spacers under the split brake plates may be the way past this--seem to recall something about this in the past where someone had too thick a clutch plate--they had machined a later U series dry clutch plate down to use in their J series--I do not recall you giving us a Serial Number so I am shooting in the dark as you could even have a U series oil clutch--not likely by the dialogue going on here.

I recall mention here of re-installing the old worn clutch plate.
The J series clutch plates were reportedly :- new--0.375" and worn--0.300" if this helps.
The U series were thicker but I cannot find the specs.

Cheers,
Eddie B.

thanks for all your help Eddie. My D2 s/n is 5U9306

Ohhh man, the actual issue is still a mystery. But great news, I got this working now! I pulled the clutch assembly out, removed the 2 brake plates, and reinstalled them top to bottom, instead of left to right. The brake plates are sitting flat and true now.

I think somehow the bottom brass yoke wasn't seating correctly in the lower fork?? I have the clutch brakes engaging now when I throw the lever forward, didn't need spacers, and I'm using the new thicker main clutch disc installed. Wow, I can't believe this is finally resolved. This was so frustrating. I'm not even 100% positive how I fixed it, but it appears that bottom yoke wasn't installed correctly with the fork? That's all I can figure the issue could have been. I feel like I'm an expert with this clutch now, having fiddled with this for weeks and analyzed EVERYTHING haha

thanks again for everyones help with this! Now I can sleep soundly again lol

Thanks Neil, yes, General Gear is awesome. I got a new brass collar from them along with a less worn yoke. The over-center engagement/disengagement is very tight now

What exactly is recommended for the filling that lubricant cup with?

Great to hear you got it sorted finally, I use engine oil in my D2 oil cup.

There's supposed to be a wad of felt in the little oil cup that is saturated with the oil to let it drip out over time. Make sure the felt is there and oil it before each time you use it or daily.