Have you made a washer and put it on the axle tu push the derailleur slightly out, per [MENTION=432202]berlinonaut[/MENTION] instructions? I do not already remember details, hence cannot quite confront my experiences against yours, but without that washer the derailleur was getting stuck against the sprockets or something.
Yes I tried that but it was not shifting well with the spacer and I was getting frustrated at this point so I went back to it with out the spacer and all was well again. I do not have an understanding of why this happening. I am using the same derailleur and same hub driver. I have three sprockets but it is hitting at the end of the driver which has not moved. Why should this be?