Excellent use of technology to show us just what is going on. We should have you fixed by midnight. Just so we are all using the same terms, I will refer to this assembly schematic that I borrowed from Chestnut Ridge Supply and modified:
Your problem is virtually identical to the one I had. You are absolutely right in thinking that the problem is in the rear sight windage knob (52). The rear sight nut (We'll call it RSN), which is permanently assembled inside 52, is supposed to tighten firmly onto the pinion and spin freely inside 52, so that when 52 is turned, RSN stays in place. If it isn't spinning freely, it is probably dirt or machining chips or congealed grease that is causing it to seize. It may also be rough machining, which would make things harder.
Take the sight apart, as you largely have already, but also remove the cover (50), which you rattled in the video but didn't remove. Clean the hell out of everything, being especially sure to flush # 52 with solvent. If the RSN spins freely within 52, you should be set. If it still feels gritty, you will likely need to work some fine abrasive in there (whitening toothpaste, or Comet cleaner with a few drops of water to make a paste) and spin it with a screwdriver to smooth it out. Then flush thoroughly again with water and rubbing alcohol, then dry. Lightly re-oil everything and reassemble. You need to ensure the D-shaped RSN engages the pinion (51) properly. Get a screwdriver that fits 51 nicely and, once you are certain that everything is properly positioned, tighten 51 hard. If it ever moves again, you might consider blue loctite on the pinion shaft.
Proper positioning should have the aperature centered left to right, and the vertical point of impact matching the distance on the elevation knob (typically 7-11 clicks above absolute bottom).
Thanks Battlerifle!
I'll be using this info for sure as soon as I find some free time in the next couple of days. My Canam shorty is kind of like the one in the video as well.
