Sounds like the hub to me. Might be able to adjust it, but I had a hub break and grind down recently. $ 42 later I had an entire new rear wheel. Weinmann 519 for a 26" atb. Wasn't happy that the old one broke, but relieved it didn't cost more and it was a 5-10 minute swap out and the bike rides as new again. The LBS tried to match up the bearings, but the inside bearing cup was jagged on the gear cluster side. I made that decision to replace it all and don't regret it. Not sure if they could've fixed it, but didn't want to waste the guys shop labor time to get something that may not hold up for the ride home ?