The New Holland 68 is a fine baler. IMHO - it is the baler that put New Holland on the map. In some ways, the design of it lives on with the present New Holland BC5050 baler. Properly adjusted and in spec, it WILL spit out bricks.
Here is a couple of videos of ours in action:
New Holland 68 and Massey Ferguson 5 Diesel Baling Hay - YouTube
Baling Hay 2 15 w/ John Deere 5 55d & New Holland 68 Baler 2nd Cut - YouTube
A few things:
Firstly, if you don't have a manual, get one ASAP. You can download a manual with a credit card from New Holland in PDF format for a small price. I keep mine on my iPad tablet and have it with me when servicing the baler. If grease is involved, I print the page I'm referencing.
"First problem I had was the clutch slipped to point of smoke generation so I tightened it 1/4 turn on the bolts and it stopped slipping."
The clutch should slip a tad on each stroke, but certainly not to the point of smoking. I think you are on track there.
"During use it kept making banana shaped bales even though I adjusted the tines quite a bit and occasionally the hay was not cut cleanly."
New Holland balers get a bad rap on banana bales. The feeder design is sound and if parts are up to snuff, properly adjusted and the operator has somewhat a brain - they will crank out thousands and thousands of bricks. I've got JD and NH balers. I sell all of my squares and banana bales are unacceptable. My 68 makes bricks.
Check the spring loaded hay dogs. There are three in a NH68 (trying to remember), two on the top and one on the bottom. If the springs are weak, broken missing, you've got problems. A cheap fix and your New Holland dealer probably has these in stock or can get them quickly. If you need a visual, New Holland's parts website has great exploded view, printable, parts list views of the baler and these are free. Also - there should be 4 total vertical triangular wedges, two each side on the bale case.
Measure the aluminum feeder tines that rake hay into the bale chamber. They should be around 13-3/4 long. Over time, they can wear down several inches and become ineffective in delivering hay. If you can't get hay to the far side of the bale chamber, you will always have banana bales and while some folks try it - no amount of tinkering, tightening of the bale case springs can fix it. If these feeder tines are worn down - replacing them can make an old baler perform like new again. The steel "rice pick" tines on the other end of the feeder bar are steel and probably OK. The are, however, spring loaded and that should IMHO be working.
Next is the location of the feeder tines on the feeder bar. Their adjustment is counterintuitive. If you are not getting hay to the far side of the bale chamber - as a point of reference, standing from the back (far side is the left side) you will need to move the feeder tines to the right on the feeder tine bar AWAY from the bale chamber an inch-ish at a time. This puts a bigger wad of hay into the bale chamber and more to the left side - filing the bale chamber and going a long ways to eliminating banana bales.
"I plan on sharpening the plunger/knife edge. Does anyone know how close the plunger is supposed to be adjusted to the edge? It looks around 1/8 inch. Will this help to make a more square bale or does anyone have any other suggestions?"
The gap should be 1/32 of an inch. If the gap is to wide (ours was about 3/8 to 1/4, the knife will pull hay into the pick-up side of the baler vs cutting it off - aggravating the situation. Probably frozen-up, but you will notice on the left side, there are about 6 jack screws. This moves the whole plunger over towards the stationary knife. Shims can be used - if you can get the knife off. We struggled to get the screws out that hold the knife to the plunger on mine and had to pull the plunger (to replace the wood slides too) and weld bolts on the face of the screws to get a wrench on them and they came out. Replacement screws from McMaster-Carr were much lower in cost than NH. Once the knife is off, you can put a nice sharp edge on it and shim if necessary. The stationary knife should also be sharpened/ground to give a nice 90 degree edge to the plunger knife for maximum shearing effect.
"This model has wood glides for the plunger instead of bearings-do these glides needs lubrication? I wondered if I should wax them or something else."
The wooden slides if New Holland, should be a hard maple. I put a little oil on them prior to getting started, nothing beyond that as I'm sure the dust/friction soaks/wipes up what ever oil is left. These slides last generations. Mine were rotted and looked like termites had been in them! So we replaced them. New Holland wood slides are expensive, Best Baler Parts has them for around $50 and if you have (or a friend) wood working skills, you can make a set pretty easy. Lots of folks just use a hard oak if maple is not available.
IMHO - if you are going to use this baler going forward and maybe buy it - it's a good idea to pull the plunger for an inspection. Easy enough to do. New wood slides - going back in might be a wrestling match, but it's good to know those slides are in shape when running at 540 PTO rpms. If you have the plunger out, check the pitman drive bushing on the plunger. If it has slop, replace it. Not that expensive, but needs to be pressed-in. I did this fix on our NH68 and it took the slap out of the plunger. Also - note there are jack screws on the plunger that set the tightness/clearance vertically on the plunger. When removing the plunger, these can be loosened/freed for later adjustment too.
With regard to operating the baler. If you are confident the wood slides are in good shape, run the baler at 540 pro rpms. This gives you more flakes per bale which reduces the load on the knife and makes for a better shaped bale. We try to make a tight 32 inch bale with about 15 flakes per bale and they are bricks. Weight is really a function of hay moisture, so for us - if we keep 32 inch bale, the weight takes care of itself. BTW - the variation in length of a bale is a function of the flake size. So if your flake size is 5 or 6 inches each and the knotter is on the edge of tripping, you can get a 38 inch bale vs 32.
540 PTO rpms also maximizes the potential/kinetic energy of the flywheel when smashing home a flake of hay. You will shear very few flywheel bolts (or none) with 540 rpms. We did not do this when we bought our 68, partially because the wood slides were in bad shape, but once the baler was refurb'd, we kicked up the RPMS and the baler really does well - as it was design to operate at this speed. You can search the New Holland 68 and find other's comments on how much better this model baler performs at 540 rpms.
Another thing is make sure the PTO is level (or near it) coming from the flywheel to the tractor's PTO. My 68's PTO was a bit low and in turns, that aggravated PTO chatter. The height is adjustable via a bracket on the tongue with multiple hole location/settings. While the 68 does not turn tight like my JD348 with equal angle hitch, it turns tight enough.
New Holland balers, especially the 68, like to be fed near the plunger side of the pick-up. A full charge of hay in the pick-up - not jamming it, but keeping it full. A 68 will eat some hay. While lower capacity machine, 63-65 strokes per minute, the limit on capacity when pulling a trailer is the stacker, not the baler. When we got our 68, it was in overall great shape, had been setting in a barn unused for some 20 years. In spite of that - when we got ours, it was king of loose/banana bales. With a refurb, it now is a brick maker. Note the New Holland 68 was first made in 1958 and in 2016 - you are running a 58 year old baler. So condition vs age is most important.
THE MOST IMPORTANT THING!!!!!
Make sure the plunger stop is in working order and will move into the bale chamber to stop the plunger if the needles come into the baler out of time. Note, the plunger has slots for the needles to clear it as they meet in the bale case during knotter cycling. It is NEVER the case that the plunger banged into a set of needles and broke them, but a wad of hay gets between it and the needles and does the damage. Also the feeder tines (and the whole baler) needs to be timed. With a manual, it is most easy to time a New Holland 68.
Good luck with your baler.
Bill