Dont you mean 1/16 to 1/8 from sitting against the shoulder on the block. It sounds like one of two things. Either the gear is fitted in the wrong position or the hex that the
oil pump drive fits into has not been machined deep enough. Sometimes the broach that forms the spline will leave a metal shaveing behind that gets past QC. Have you got access to a bare block that you can trial fit the dist alone too & if thats OK then bolt a pump & drive up and check that you have a small amount of free vertical movement of the shaft. You should also be able to lift the dist gear up easily by a small amount (0.010" approx). Of course you could just cross reference all these measurments from your old dist, but I prefer the other method so you can actually see the clearance.
Jac Mac