there should only be an outer set of bearings on each side of the hub. there should be a set of bearings on the outer sprocket (cassette) side and an identical set on the other side under a dust cap.
there are also little bearings inside of the cassette itself i beleive, but they are very hard to get to. I have never taken a cassette apart myself and it requires a special tool to get the cassette off of the rim (if you are referring to a standard 10 speed multi-cog cassette).
I'm no expert in this area that's for sure, but it sounds like something is bound up inside of hub or the cassette. but you say that the wheel spins freely.....hmmmm.
so when you stop peddling (holding the cranks still with your feet), the rear cassette wants to keep turning, allowing the chain to bunch up? is that right?