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A friend gave me this old Diamondback Outlook, and I'm tuning it up to give it to another friend. So far I've replaced the headset bearings, removed the rust from the chain and relubed, tightened a loose shifter cable, bent the bottle cage (that was interfering with the FD), made a few fitting adjustments (bikes a bit small and he's bigger than me - so this will be interesting), "tweaked" the shape of the front derailleur using a wrench as a lever. I've taken off the pedals and plan to disassemble, clean, and regrease them today.
I'm not really planning on doing anything else to it, but I've noticed if I hold the back wheel off the ground and get it spinning while the crank is stationary, the freewheel doesn't really hold still. It sort of wiggles around a bit as the wheel spins, even though it's not spinning itself. Does this mean it's shot? Is it unsafe to ride, or should it be okay?
Also, is there anything glaring I've missed that I should check before I pass the bike along?