The overall adjustment is under the plate that sits between the dash panel and the seat.
The whole deck height control and belt tensioning system is very simple and fits into the "cheap & nasty" catagory.
The adjuster adjusts all 4 deck lifters and sort of compensates for wear in the belt & pulleys but there is no adjustment to compensate for wear in the lifting mechanism.
Right now I have one in the shop and am about to cut the 3 non adjustable hangers to thread them so they can be adjusted.
Usually what happens is the deck just hangs too low so by the time you are at 3 the deck is already on the ground so 3,2 & 1 are all 1/2" cut which is what you use when you want to kill the grass .
At the off position, are both of the pulleys pushing against the brake pads hard enough to stop the blades rotating ?
Good bet they will be hanging 1/2" to 1" below the pads
Every second one of these I work on, some one has put a spacer block under the brake arms to make up for the fact that the deck is lower than it should be, otherwise the blades never really stop spinning and the belt tends to burn on the drive pulley.