Nurse
First----Erase your #3 down. Don't start reengineering the kart.
#1 Although you may find a stubshaft the size you want, you may be placing undue strtess with that pulley and belt hanging out there. Wouldn't want my kids riding a hazard like that. Which leaves #2
#2 seach ebay or amazon or perhaps a local auto supply for standoffs or spacers. In fact I have seen large nuts (5/8 or 3/4)to use as standoffs. Cheaper and this isn't rocket science.check close and make sure you will clear all parts by raising engine. Use flat washers and lockwashers to secure enine firmly. make a habit of checking tightness regularly.
W B's post in American Landmaster TW450 Won't Start!! was marked as the answer