A careful read of your description tells me that it is definitely your hubs that are the issue. Not uncommon. You do not have to spend big $$$ to replace the crappy electric ones. Junkyard Toyota parts from a solid front axle pickup (probably 40/60 series too) will do the job. Better than spacers too. Check out the post on this conversion in my build thread:
Clints Cruiser Project - Page 2 - Offroad-Express
Cheers
Clint
Clints Cruiser Project - Page 2 - Offroad-Express
Cheers
Clint