i see two problems
1) you said chain is too tight, thats easy fix... but you shouldnt even worry about that because
2) your original go kart in all likelihood had a 30 series torque converter
So in essense, it wont matter how many times you oil the clutch, or how loose you have the chain, your manco go kart had a torque converter. Not sure by the picture, on which one it had (th but based on your engine size, and tire size (im guessing eithe r 18" or 22")you need a '30 series TAV2'
That will solve your problems. Also, im not sure what size sprocket that is. It almost looks like its a #35 pitch sprocket. Is this the case? hmmm....
If its 18" tires, you need to go with the 10t type c sprocket that comes in the tav2 kit
if its 22" tires, it will put strain on your engine, and an 8t would be 'close enough' but this is with the 54t axle sprocket, not a larger 72t #35 chain sprocket.