Andrew R Stewart 

Peter, Peter couldn't you at least clean the parts... Have you placed you finger inside the hubshell bearings, spinning them to feel their condition? The same could be done for the freehub body bearings.

"horrible crunching sound" could be really bad off bearings (and this should be able to be felt with your fingers), ratchet pawls having rough/worn engagement ends, same for the ratchet ring, a serious lack of lube and perhaps grit/salt issues between contacting parts. I would clean the outsides of all, inspect and feel the bearing spins (and yes, the freehub body ones are best felt w/o the axle in place), inspect the pawls and generally look for rough or corroded surfaces.

I do agree with the use of tiny hex headed set screws is not the best choice for bikes. Even with a fresh and clean wrench it is easy to strip the wrench in the socket screw's head. If you're not planning to replace the bearings (and on some freehubs they can be pretty tightly pressed in) I would be careful about applying heat. Andy