It almost sounds as if you may have the wrong spacer. But, if in fact it is the correct spacer, and its too high, is it possible that you have the wrong intake manifold? The manifold used on ALL CI hood setups was a LOW rise version, even the LS6 engines.
A spacer which is about 1/3 the height, is one which was used on about 1980-1-2? throttle body injected (Olds V-8 style engines) 350s in front drive cars such as Toronados (Riveria, eldorado). This spacer is discontinued from GM, but they are not TOO difficult to find in the salvage yards. The overall height is 1in, but it only raises the air cleaner about 3/4in because of the lip which fits up into the bottom of the air cleaner.