The bearings are just slightly loose. You can turn them with your hand, but I think a thin metal shim and maybe a dot of JB Weld as Buckeye suggests might just do it. The weld bead and regrinding would be the total fix, but I don't do my own welding and that solution becomes a logistics and timing problem. Ironic, I work for a welding company, know the theory inside and out, I am certified in soldering, but never welded anything. I'm thinking about just buying a TIG welder and going nuts. I know there are lots of MIG and stick welding fans, but the fine work I want to do means TIG. The goal; next year my project will include my own welding!
Chipper did some great welding on last year's project - I'd love to hear his advice (or from any seasoned welders out there). By the way, I tried Chipper's rod connector idea for attaching the rear sprocket to the five-spoke wheels. Not only is it strong, it creates a perfect gap between sprocket and tire. Photos coming soon.