Thanks dedhed, bikeman715 and speedy25

I finally did it .. finally . It was a combination of all the advice on this thread. All the adjusting was a problem, so I decided to open it up again. Then I cound the bearings and what do you know? 1 missing . Then I peep around and the little guy was happily stuck halfway up the hub and not moving cause of all the grease. That makes sense as to why the axle would sometimes rotate freely but sometimes just get stuck.

The rest...I made sure I had the locknut on. Adjusted bit by bit and closed it all up. Spun axle. NO noise. Welll a really really teeny noise but that's more just the rotation of the wheel and some contact against the bearings I guess. That's a huge relief.

Somehow then I manage to forget how to put a quick release in and waste 45 minutes figuring that out. :facepalm. But all's good guys.. the wheel is back on the bike and spinning smoothly. I can't thank all of you enough for helping me through this.

The other problem that seems to have magically come up, is that my brakes are all messed up now..and all the playing with the cables and brake pads is NOT fixing it. What could I have messed up in this process that has now affected my brakes? Wheel alignment maybe while putting it back? But that seems reasonably straightforward..dunno.

I mean.. the brakes work. But if I press it then the brake arm seems to go and get stuck against the wheel (only 1 side). I pull it off manually and it starts working. All was working before this hub servicing that I did . What did I do that screwed it up?

p.s: Should I start a new thread though? As this is a separate problem - I just thought it was connected and was also (:hides face) a bit lazy.