It probably just needs a rebuild. There may be something lodged in there and that's binding it up. Try taking out the 2 speed assembly and just shooting some degreaser through it. Should free things up.
Also, if you are just moving the wheels forward, then the 2 speed should be rotating with the rest of the drive train. Try putting your finger on the brake (to lock it) and then try spinning the taller gear. It should spin rather freely along with the other gear. If it's not, there is probably something binding it; just clean it up and things should be back to normal.