There's probably nothing wrong with that engine at all. My now-gone JLC Allegheny was a fantastic runner. Unloaded geartrains can tend to float/hunt around or about it's most free axis (axial in this case). Unless the engine is stalling out/binding, there's probably nothing broken or out of alignment. You would be able to measure that by motor current. If the gearbox was moving in a purely vertical axis, then something is very wrong mechanically. It's not outside the realm, especially if the engine was acquired secondhand. It's amazing what PO's can do a train.
I recommend observing the behaviors under load.