Definitely a mashed bearing

i suppose if you pop the end off the motor by hitting the motor shaft you could get into it and change the bearings yourself.

I think brian hit on the problem really these motors are designed for use in aeroplanes and thus the bearings are not super durable.

Add to this that most nitro conversions have motor mounts that allow too much change in the mesh between the pinon and spur when under driving loads. Mikes mounts seem to be the best for avoiding this as the mount is directly integrated into the spur/differential mount thus having a direct and fixed connection maintaining a more consistent gear mesh.

Once you have replaced the bearing i would do some or all of the following.

1. Get a new motor mount that solidifies your gear mesh better.
2. Dump the clutch it just adds unnecessary not particularly well balanced weight to the motor shaft and get a pinion.
3. Set quite a loose gear mesh and check the mesh throughout the entire rotation of the spur gear (they don't always spin concentrically)