Both freewheels I referenced claim to be compatible with both 1/8 and 3/32. After I installed the first freewheel(the ACS Crossfire) and had this issue I went to my LBS. They installed a new freewheel(made by Sunlite) that was for an 1/8 chain. I do not believe this is the same issue here. According to them, the freewheel I had was threading itself onto the hub and tightening it as I turned the wheel. I can feel the wheel loosening as I spin it back the opposite way. I never got to try the Sunlite due to the chain size difference but the Shimano is acting the same as the ACS was.

I am sure the wheel is not touching any part of the frame or brake other than the chain and the dropouts. Here are some pics showing that it is not touching anywhere(sorry for the crap quality):













I just find it very odd that arguably the two most popular single speed freewheels available do not work on this wheel. I have talked to Richard at Wabi about this and it is the first he has heard of it as well. I would be surprised if this ended up not being something I was doing wrong. I just cant figure out what that would be.