You can download a service manual here to better decide for yourself.
It might be something as simple as a worn shift key or?????

http://www.cpdonline.com/691218.pdf

Thanks, Bill. I'm guessing the shift keys are internal to the unit, nothing I can inspect without opening it up??? As a side note, the other day I purchased this very manual online for $8. Wish I had known about CPD Online last week. One thing I didn't notice until just now is the glossary at the front of the manual. Very helpful. Thanks again.

SHHHHSSSSHHH about the manual. I found that through "the back door" a few years ago!

And double "SHHHHHHHHHHHH" on this image!! I think you will find a broken, chipped or badly worn tooth on one of the gears that I have indicated with green stripes. What causes the "clicking" is that when the gears rotate under a load (they are always in mesh but only "loaded" when the shift key is engaged to a specific gear) and the damaged gear tooth arrives at the point of "mesh", there is a momentary jump or lurch as the driving member of the pair accelerates when tooth contact is lost. Almost as soon as it loses contact, contact is made again on the next "good" tooth and because the driving gear is now slightly faster (but just for a split second) than the driven gear, the actual contact is like a hammer strike on the driven gear tooth. If this is not corrected, the repeated impacts of tooth on tooth will "shell off" more teeth (especially if heavily loaded). Your options are to disassemble and repair (replacing defective and worn parts), OR try to find a "good used" transaxle assembly, OR just "DON'T USE 3rd GEAR". If you choose the option of "DON'T USE 3rd GEAR", you should at least drain the oil and try to flush out any broken teeth or shards of metal that may have resulted from tooth breakage. Good idea to "fish around" in the bottom of case with a small, flexible magnet. If you have a big, strong magnet....you can place it up against the bottom of the aluminum case (on the exterior surface) and repeatedly drag it toward the open drain plug hole. Start at the point farthest from the drain and drag toward the drain hole. Drag slowly and you can "tickle and coax" small pieces of ferrous material to the open hole. If you could be lucky enough to buy a replacement drain plug that has a magnet in it, that would be good too. Best of luck to you.{{gwi:316996}}

Thanks very much for the info, guys. I can do 'shhhhhh' with the best of them. ;). I've decided to buy a new Craftsman rider so the wife can begin mowing (love that part), and I'll TRY to repair the old Craftsman (Peerless transaxle) for use as a beater utility unit. If I fail, nothing lost.