What is the correct amount of clearnace I should have when the starter engage into the flexplate. I have shim up my Hi Torque starter, which took about 7 shims to engage into the flexplate, but how much clearance is sufficient.

Wow, that seems like a lot of shims. If you are talking about the space between the teeth use a regular paperclip to measure .035 -.050. This is what Powermaster recommends.

This is a Hi Torque Starter and they are very thick. I had to use about 3/4" in shims to get the gear to mesh with the 168 tooth flexplate. My starter have both set of mounting holes 153/168. The motor is a SBC 400 in my Signature....
Here is a picture:
Hi Torque Starter (http://f1.pg.photos.yahoo.com/ph/dtl5042002/detail?.dir=/cc40&.dnm=d072.jpg)