Nothing wrong with the gears.
I can't say as to why you are getting the results in your last post, but as far as you first post...
The modification you performed was not to make it a "positionable 360 degree servo" - it was to make it a "continuous rotation servo" - aka, a gear-motor (alright, one with built-in h-bridge, simplified control scheme, and a bit of speed control).
If you set the potentiometer properly, then using the standard Servo library, "90 degrees" should keep it close to "non-moving" (you may either have to adjust the potentiometer for this to be perfect, and/or some settings in the library as well - they vary servo-to-servo). Setting it to "0 degrees" will cause it to rotate at it's fastest speed in one direction, and setting it to "180 degrees" will cause it to rotate at it's fastest speed in the opposite direction.
To obtain what you seem to have wanted (a true 360 degree positionable servo), you would typically need to get a "sail winch" servo (which tend to be larger than regular servos - though I haven't looked lately; maybe they make smaller ones now?), which can typically rotate multiple times - but eventually will come to a stop. You can also get "extended travel" servos, which have the ultimate end-stops in such a location so that you can -almost- get 360 degrees. For both of these servos, you need to either use what is called a "pulse stretcher" - or mod the Servo library settings to allow for the greater travel (in your case, the latter would likely be best).
For a "true" 360 degree positionable servo - you may want to look into something like a Dynamixel AX-12 or similar digital bus servo; you can't use the Servo library for these servos (I'm honestly surprised that nobody has made extensions to allow for it) - they use a special serial bus protocol to operate (I'm sure there is a standalone library for the Arduino to communicate with them, though); but what you gain is programmability, feedback and higher precision (they are essentially like a continuous rotation servo that is more accurate, with a high-precision encoder for position control and feedback. They aren't cheap, though.