Thanks for the input guys. Basic answer is sway bar should be free to pivot at the poly mounts and is not supported or limited in any other way. After studying the supplied bushing mounts vs the stockers I can see that Hellwig's brackets are acting as spacers as well as mounts for the pivot bushings. My brackets are just too thin and don't provide the spacing for the larger diameter bar.

The reason behind my question about spacing the bar down is that Uhcoog1 wrote in his thread on adjustable sway bar end links that he had 3/4" spacers on his bar. I always wondered if there was a benefit to this or he was correcting a fitment issue of some kind.

To your questions:
"It sounds like it's rubbing the half-moon stampings just at each opening of the k-member pass thru. There's usually some stamping flash on that edge too." It actually contacts a few inches inboard of that point where the "flat" of the stamping has a dip in it on both sides.

"Why are you not using the supplied brackets? Are you using the Hellwig kit supplied bushings with U-straps? I don't think they will fit in the stock channeled brackets." They just seemed to be excessively heavy for the application. I flipped my stock straps over to address the bushing fitment issue. I have some 1/4" slugs that will make perfect spacers to correct this issue.