While working on the atv, I found that the rear axle is difficult to turn with the chain removed. Also, there is a squeak while turning. I loosened the locking nuts on the right side of the axle shaft, next to the brake drum seal, and was able to free up the axle a little. It turns very easily with the nuts backed out completely, however if I adjust them to eliminate side play, it is again hard to turn. Does anyone know the correct procedure to setup the rear axle?

 

Are you sure it is not the brake slowing it down. It may be that you loostened the nuts and it is puting more slack in the brake cable but when you tighten them back up it tightens the cable. Loosen the brake cable all the way and see what happens.