You should be able to turn the pulley on top of the tranny fairly easily will going through all the gear. Now the higher gears will turn harder, but should be fairly easy to do while the tranny is laying on the bench. Some of the Peerless units used gear oil and some use bentinite grease, which sounds like is what was in your tranny. with the tranny in neutral you should be able to spin the gears with almost no resistance.
If the gears are turning hard, that is what is causing your problems. find what is causing it and then you can repair it from their.