I have pulled the brake apart, and removed the brake pads as I mentioned above. The problem is that the brake pads held the male and female parts of the "Screw" that engages the hub when you pedal forward close enough to engage. I have put washers in there on the axel bolt, and they mostly work, but there is a half to whole crank of the pedals before they engage. And it kinda sucks.

I am willing to buy a whole new real wheel if that is what it takes. Is there a 26" Rear wheel set up I can buy to make it a simple freewheel set up?