What did I do wrong?

Just to double check your assembly, You said it set up good with the checking bearing but when you press the new pinion bearing on the pinion face was hitting the carrier? Are you sure the new bearing was pressed ALL the way on?

Yes, My thought exactly but confirmed the bearing was all the way down with feeler gauges measured at .094. It did not rub at 1st set-up WTH.

That's why I knocked out the races and confirmed all was good there. No burrs or anything so I put new ones back in and removed the bearing to start over.