White smoke is a new one to me on a small engine. I only ever seen it one time. An old timer showed me a little trick on cleaning carbon out of the engine. Dribble a little breakfluid in the carb while it is running. It worked, but there was the most white smoke I had ever seen in my life.
Sorry i didn't answer back, I've been out of town for a couple of days. usually when there is "white" smoke coming from the exhaust there is water getting into the combustion chamber. But this being a 7HP air cooled engine, if there was that much water in the fuel it probably wouldn't run at...
I've fixed a few engines that were doing the same thing. A cloged breather would be the first thing i would check. It could also be worn or damaged valve stems or a broken piston ring.
Hope everything goes well for you. I just fixed up a manco dingo for my 11 year old step-daughter and live axles are pretty simple to work with. Looking a smaller frame for my 4 year old son now.
I'll have to agree with redsox985. If you get the sprocket to close to the center the chain could pull on the axle and warp it.
If you could get the sprocket to the inside of the frame though, it would open up a world of rim and tire options
You could try doing away with the belt. Installing a old school 12 tooth clutch on the motor and a 19 tooth sprocket on the jackshaft. Leave the jackshaft to drivewheel sprockets alone. That combo usually gives me more than enough low end power. I've never had any luck getting real good grip in...