The wheels turning with the pullstart pulls is either a bad clutch bearing (sounds very likely given the other problems you have), or bad springs in the clutch.

The smoke coming out of the engine side of the exhaust is bad news, you need to replace whatever gsaket or coupler is worn, as you are bleeding pressure through that hole, which is needed to push the fuel through the system to keep the engine running. Inspect clutch bell bearings, clutch springs and shoes, get new couplers and gaskets for the exhaust, and take it from there. Good luck.