Well, this is a tough one because I don't know what your pilot bearing or flywheel look like.
But, if I were to guess, which is what I will do, I would say that the pilot bearing sticking out a bit from the crank is alright. Just so long as there is no undue pressure being put on the crank from, say, something like the transmission input shaft bottoming out, which results in the thrust bearing getting destroyed, I think a little pilot bearing sticking out and not touching anything is ok -- I wouldn't worry about it. Now, about your flywheel and starter alignment; clearly the starter is not now, nor has it ever, aligned up properly with the flywheel. Also, my AC Delco OEM rebuilt starter, and the aluminum Centerforce flywheel, and the Lakewood bellhousing and block plate, all align up with my OEM iron block without even trying. That said, here is a nice article that ERA supplies on aligning a Tilton with a Lakewood on an iron FE block.
Setting up a Tilton Starter Now, remember, I've never had to do that, so I'm of limited help.
