The heavy spring at the end of the PTO cable is what puts the tension on the belt when you engage the PTO. Check that you have correctly installed the spring in the arm that moves the idller pulley.
With the engine NOT running, engage the PTO and check the belt tension up by the engine pulley. It should not be banjo string tight but not so sloppy you could get it off the pulley if you tried.
I have seen where the correct size belt (1/2" x 96") was too loose and acted like yours. I installed a 94.5" or 95" belt and everything worked just fine. I think with as the tractor ages, a combination of cables and belts stretching and spring losing tension causes everything to start slipping.
As far as you handle not topping out in the notch, you would find that it WILL top out when the deck is not installed. The reason it doesn't is because the top of the deck contacts the bottom of the tractor frame when the deck is fully raised and that is where the handle stops.
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