The hub has just been serviced at a bike shop. With the bike on a work-stand, the rear wheel rotates when I turn the pedals backwards. There is a lot of resistance if I hold the wheel and turn the pedals backwards. If I turn the pedals forwards and stop suddenly, the wheel will stop turning within 3 - 4 rotations instead of free-wheeling for 30 seconds or so. With the chain removed, the wheel rotates completely freely. I had earlier complained to the shop about loose wheel bearings after the service and they 'fixed' this problem. It was then I discovered the stiff rotational resistance on the sprocket. Regards.
OK. I love the nexus series. They are great pieces of kit with a lot of utility in crappy environments. Low maintenance, ease of use and nearly bullet proof.
Except when it comes to water. Your model uses grease to lubricate the internals, not oil. Water intrusion, even in small amounts, will cause the symptoms you describe. The hub most likely needs to be taken apart, cleaned and repacked with the super special shimano grease (I wouldn't play with that one here as the wrong grease might cause damage.) It's pretty straightforward if you take your time. For more information, including diagrams, instructions and shimano factory manuals go to Sheldon Brown's (RIP) at Nexus Internal Gear