I actually had to file down the shaft a bit on mine.

In Brian's original design, the LED board was meant to go down pretty far onto the Mk2 encoder, far enough to accomodate the shaft. Also, I seem to recall that when he was doing a 3-LED design, his LEDs were spaced out far enough from the center so that the lip of the shaft cleared them, giving it an extra few millimeters of travel.

But even with all of that, I still had to file down my shaft a bit to get it to work the way I wanted it to. The trick is, don't file it down so much that you can't get the rubber O ring to stay in there. That O ring is critical.

I don't have pictures because now I've swapped out the Mk2 encoder for a Mk2a encoder.