I won a Shimano Nexus 8 speed hub on Ebay the other day. This was a bit of a gamble, as the seller said that the hub was stuck in gear. Well I was bidding against someone, so if the thing was unfixable, I could always get most of my money back.
Using the very useful site SheldonBrown.com I found instructions for stripping the hub, which is something you just don't want to do. These things are complicated. I was also fortunate that the seller included parts from a damaged hub so I could see some of the affected components.
So it turned out that the gear selector cable connects to a cog. The cog connects to two prongs that stick out the side of the hub. Except the prongs were not sticking out the sude, instead they were flush with the ball race.
What appears to have happened is the non drive side bearings have been tightened up too much, probably through the cup and cone being too tight. This has the effect of opening up the bearing on the drive side and drawing the gear selector pins inside the body. So I released the non drive side nuts a couple of turns, and gave the drive side a very gentle tap with a hammer. A little bit of persuasion later and the hub appears to select gears, but I'm not going to know for sure until I test it in a bike frame.
While the combination of hub gear and drum brake makes for a heavy back end, I've now got a set of gears with no overlap, and I don't need to worry about derailleurs. Also the rear swingarm will only require pretty standard dropouts.