Does that pickup have a narrow steel strap under it like the internal Mildon pickups have to prevent it from bottoming flush against the inside bottom of the oil pan?
If it does not I would remove the drain plug and use a thin stiff wire to try and measure how much clearance it has now, if it is between 1/4 to 1/2 inch max I would run it that way
Is it 1/8-inch lower measured off the bottom oil pan rail on the block or is it 1/8 inch off the bottom of the inside of the oil pan?