Well, I solved the shifting problem. And luckily, before I drained the oil and removed the clutch cover. Yes, the circlip and washer are still there. However, the circlip had come out of its groove on the shift shaft, resulting in the large amount of play I described. I guess it caused the arm to become disengaged. I pulled the shift shaft to the left and pushed the circlip back into the groove. Seems to shift fine now.
BUT.....now the clutch is acting up. Seems not to want to work. When I took the cover off, that little ball fell out. I put it back in, but the clutch still doesn't seem to be disengaging all the way now. Well, it's late and I'm tired so I guess I will take a fresh look at it tomorrow. I agree with Robert Pirsig, you can't work on a motorcycle when you are tired.