The felt washer is a seal as the bar and engine side pivot will be moving with engine movement and the frame mount will not.
Does the z bar move OK ... if so either leave it as is or
1 - Move drive train to gain a bit of clearance - you have everything loose... Board and jack under the oil pan to pick up some of the wt and pry on the drivers side frame mount a little bit.... see if it moves easy
OR
2 - cut of grind [ then de-bur ] the end of the bar to get clearance
Stanglovers looks pretty tight too
Does the z bar move OK ... if so either leave it as is or
1 - Move drive train to gain a bit of clearance - you have everything loose... Board and jack under the oil pan to pick up some of the wt and pry on the drivers side frame mount a little bit.... see if it moves easy
OR
2 - cut of grind [ then de-bur ] the end of the bar to get clearance
Stanglovers looks pretty tight too