If the front wheel won't coast when lifted like that, or is hard to turn, you may be in need of new seals in the caliper cylinders. Old seals will stiffen up and not allow the pistons to relax, resulting in excessive pad friction when the brakes are off. It's gonna be a bit over a hunnert bucks for the seal kits, and installing them is not the simplest chore, although not really that complex. You have to remove the caipers, pop the pistons out, remove the seals and install the new ones, reinstall the pistons (after a thorough cleaning) and then a complete brake bleed at all front bleed screws, one of which comes from the rear with the linked brakes on your Gen-II.
You may get away with simply giving the pistons a good cleaning, getting the crud off the section that's exposed.
The pads will touch the rotors with the brakes off, but they shouldn't have enough friction to keep the wheel from turning fairly freely.