IF (note "IF") the Pony lever mechanism is like the Horse, then your problem is caused by the belt being too tight. Another IF: IF it's like the Horse, then you need to move the adjustment block up a tiny bit (if necessary, move it a little more, until the machine stays in gear.)

Thanks for the reply but the Pony drive lever is not at all like the Horse. The Pony does not have the yellow block like the Horse which, as you stated, can be moved up or down. The pony has a lever which runs down to the trans. When you move the lever clockwise it engages the trans and the wheels of the tiller move. My problem is unless I keep light pressure on the lever when it is moved to the clockwise position, the lever disengages the gear in the trans and the wheels stop moving.

I just aquired a pony III with the popping out of gear problem. Did you ever find a resolution for the problem?
Thanks rex