[Mike Holt]

While riding along I suddenly thought - man, that's a lot of smoke.
I stopped, lifted the cowling and the disk brake was smoking hot.

I ended up having to pull the pins and take the brake pads out - the disk seemed to have shifted and was tight against the inside pad.
I was able to drive back - without brakes - and this is the view today of the disk and the brake housing.

You can see the disk has rubbed the brake housing enough to have eaten a grove into it.
Next is a top-down view. There is little clearance between the disk and the transmission housing.
The transmission is bolted to the frame, and the brake housing is bolted to the transmission so I'm pretty sure they didn't move. The transmission works fine, I can shift gears while moving. The driven pully seems to line up correctly.

The brakes had been working. I can't see how but they had been - the pads were in there and things were fine and then - smoke

? Any ideas?

Another view:

 

[TheBearAk]

Known issue with these older machines. Completely drain the hydraulics, clean up the brake pistons. Refresh the whole brake system.

Good thing you caught it, these are known to cause fires.

 

[Mike Holt]

Known issue with these older machines. Completely drain the hydraulics, clean up the brake pistons. Refresh the whole brake system.

Good thing you caught it, these are known to cause fires.

I plan on pulling the housing off and cleaning up the whole mess and making sure everything is moving smoothly. But I can't figure out how any of that will stop the interference between the housing and the disk.
The situation now is there physically isn't enough room on the inside to even fit a brake pad in there. When I remount it after checking and cleaning, it seems to me, that won't change. Color me stumped.