ORIGINAL: Losmosis
Without the balls and set screws the 2 speed will not work. They keep the inner shaft from turning when engaged. This design is to make the shift smoother. They are positioned across from each other so that they are balanced. I do not see how this part could contribute to a pinion gear stripping out.
Well first of all the 2 speed never worked for me, and secondly I never seen this type of design, and yes it will cause the pinion gears to strip, try it, it's a bad design.