Found the problem!!
I feel better...sort of. Just because that damn inner seal was in there as good as it possibly could be, and no way was it going to get better, I did an experiment. I cleaned up my old drum, popped the new seal on there and could tell immeadiatly, it fit like it should. Piston went in first try no issue at all. My shiny new drum is apparently the WRONG part!!! At least I'm not the incompetent boob I thought I was becoming.
It's really hard to see the difference in the cut for that seal it's so far down in there. But you can sure "feel" the difference. Every other dimension on this drum is the same - except that seal groove. What the hell??. There is no other seal in the kit that is remotely gonna work either (did they ever use o-rings here?). Just for the heck of it, I tried the smaller diameter seal. Same result as the proper seal.
Bought the new drum from WIT. Mine was one of two in stock. Wonder what's in the '68 904 sitting under the carport.
Thoughts??