318 Distributor install question

Yes... I would follow the shop manual, as its stated on page 9-35, doing things correctly first handedly will insure you not second guessing yourself afterwards...
I agree. While 67Dart is technically correct ~ you can make #1 any hole you want, it's best left to those who really have a solid handle on this stuff. The intermediate shaft comes out easily and once properly installed the rest will fall into place for you. First fire up can be stressful, stick with doing things right (by the book) and save yourself some headache.