Distributor vacuum advance hitting intake.......

If you clock the intermediate shaft per the fsm instructions there should be sufficient clearance for the vac advance can. If you move the shaft one tooth and also move the wires it would seem to me the can would end up in the same place. Move the gear one tooth then rotate the distributor body to line up #1 and you should be good.
At the end of the day the engine does not care where the distributor body is, only that the rotor is pointing to #1 at tdc.