How to apply a real time constraint on a moving gear Here are some examples of what I have already accomplished

http://imgur.com/sU4y5pD

http://imgur.com/GTz5PtK

http://imgur.com/rNXuqQ1

The next gif is where I run into a problem. Right after the ball hits the 'slider.' I can move the bone, but I can't move the entire selection, as seen in the previous gifs.

http://imgur.com/RSuuJ8z

Now that you've seen the basic idea, and the main problem. I will now show you a  less complicated version of my end result. 

http://imgur.com/Wj07waT

I want the gear inside the lever to spin freely on the grounded gear in real time. I wanted this so in the long run, I don't have to animate the gear placement when at a certain point. Speeding up the process of my work flow. 

My example file


My Lever Project file.
Not sure if you're interested in this solution, as it does not deal with physics simulation but using traditional constraints instead. As mentioned in a few comments already, this is recommended for various reasons, like easier handling and setup, better stability, etc. For what you're really trying to achieve, this will work.

Here is the file rigged based on your provided Blend:



I'm using an Armature, parenting a few bones in there in a hierachy like this:



Main Bone and Lever Bone are purely for better flexibility later on when animating. Using the Main Bone you can relocate the whole rig, the gear bone allows additional offset. Both bones are optional, but recommended. The lever bone is a child of the Gear Bone, so it follows the movement of that, and the sprocket bone a child of the lever bone.

The rig itself looks like this:



I turned on Axis Display for each bone, so you can see the local bone axis and better understand why I set certain values later on in the Constraint. Speaking of the Constraint, I used a Transformation constraint to achieve the desired effect:



The logic is: If you rotate the lever bone by 8 degrees along the Z axis, the sprocket bone has to spin 36 degrees along the Y axis, but in the opposite direction, hence the -36 degrees. Where I got these values from? Simply count the number of teeth of gear and sprocket. The Extrapolate option makes sure that this math relationship is kept even if you exceed the values.

Now, if you rotate the red lever bone, the sprocket spins around the gear.