"The guy told me that it was tuned and everything but if I run the peddles backwards the chain gets slack and things clog up. not a great description, but I hope you understand what I am saying."
I think you might need a new chain or one of the derailler gears is sticky.
And, I agree, these make a fine bike with a few mods. I put the cheapest available alloy wheelset, 7 speed freewheel, alloy seatpost and handlebars, and new tires, tubes, and chain from Niagara Cycle and it really is a great bike for the under $200 I have in it including purchase price.
http://s279.photobucket.com/albums/kk158/Caferacernoc/