What did I do wrong?

Setup looks a little shallow now. BTW: next time don't go so crazy with the checking compound. You have so much slopped on it the pattern is somewhat hard to read

Sorry bout that, My Lovely assistant got a little carried away with the marker paste.

By "Shallow" I assume you mean the pinion needs to have shim added. My concern is the clearance for the carrier, at 015 now it seems tight. Is my only choice to have the pinion shaved? A spool is out of the question..