If you read the article at this site called "No replacement for Displacement" it covers this issue. I have no idea why it is, but you have to grind off that 1/4" from the bottom of your distributor shaft. I had to with my 351W swap. You should be able to take a Dremel tool with a fiberglass reinforced cutoff wheel and cut it right off. Then smooth out the edges. I think I also had to cut a little off of the oil pump shaft, too. The end that goes into the bottom of the distributor shaft.
I just had a thought, though. Before you do any cutting, try placing the distributor in without the oil pump shaft. If it fits, it's probably that the oil pump shaft may just need to be shorter. I hope that's not the case. I don't remember if I even checked this when I did it. It's one of those things that I read it and just did what it said to do.
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351W 89 Mustang GT Convertible