The upper pully that has the belt attached is press fit onto the splined shaft. Probably a defective shaft as it is unlikely all molded splines in the pully would break off so cleanly that the shaft would turn smoothly.
Look at the enlarged photo below, you can see the splines just under the bearing. Here is the link to the part on Tower's Web site. Call tech support on Monday and they will fix you up. Or if you bought it at LHS, see if they have the part in stock.
http://www3.towerhobbies.com/cgi-bin...?&I=LXVPG8&P=Z