I thinkt that is the cause too, thanks.
There was no gasket fitted when I stripped it so assumed that one not required
on assembly, just some goo. However I didn't take into account the new bearings. Guess they are slightly different size.
I'll do an update...................

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'98 Mpi Sportspack + 7 port alloy head

Late, but here is the update.
It was the body of the diff touching the cover that was causing the drag.
Used a Dremel and removed some of the metal from inside the cover.
Then shimmed it to force the diff towards the 'bad' end and it was all good.
Then shimmed at both ends as advised by Swiftune.
I put it all together several times and torqued up - no probs.
However............
Once I had put the end cover and speedo bits on it was dragging again.
This time it's the speedo shaft. Calver says use some abrasive tape to get the shaft to rotate freely. Quite important because the foul can cause the main shaft to shear where it's anealled at the large nut.

I have some abrasive tape to use gently on the speedo shaft.
Has anyone had experience of this?

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'98 Mpi Sportspack + 7 port alloy head

I have had one before where in 1 position, the speedo shaft would not slot into the main shaft, however if i rotated it 180degrees then it went together nicely.

I thought it was a bit odd but it was happy how it was so i didn't fuss.