My 727 was in a sorry state when I disassembled it, and it had at some point been incorrectly assembled, for instance the thrust washer was missing between the input and output shafts.

In the enclosed pic you can see how the inner race of the sprag has been grinding in the housing.
I'm not sure what's causing this? What is it that locks the output shaft in a certain position...the output shaft ball bearing, or something else?
What would be the best way to correct this?

Sonnax makes a case saver but by the time you pay for the part and the machining you're probably better off just looking for a replacement case.

http://www.sonnax.com/product-lines/transmission/parts/1674

I see your in Sweden so I don't know if you have U-Pull It but if you have that type of companies there check with them about a core transmission. I bought a 518 OD tranny for 125 US.

Well, it's a bit more difficult over here, but buying a used 727 might be an option...
With a bit of luck I might even get one where the case is not damaged...but it's a gamble.

Obviously it's not designed to have the inner race grinding on the case, I wonder what sets the position of the output shaft in the case? Is it the ball bearing with the snap rings on the output shaft, one snap ring on each side. And the outer race is locked to the extension housing with another snap ring?
If that is the case, then maybe I could shave off a bit of the extension housing mating surface to the case and make sure the inner race bottoms out on the shaft, and not on the case?

Maybe the Sonnax repair kit posted above is your best bet over there. It's only about $25 plus shipping & machining of course.

Yes the mainshaft location is set by the rear bearing that is held in place by the snap rings on the shaft and in the case. you might be ahead by getting the sonnax bearing and machining it considering where you live and finding another case.

Yes, the Sonnax is probably my best option, I appreciate your feedback and information guys.