Freediver, welcome to the forum. If everything is working well in that position, you're OK, but near the limit. It sounds like tightening your bolts was the correct thing to do. If they creep out any more, just tighten them down again so the knobs engage the Drive sooner.
The 1/8" is not a spec, but a typical vertical play allowance for the knob without the drive installed. The idea here is have enough play to get the knob started over the drumshaft.
The reason that I recommend not to mess with the factory setting, is because I believe the cam bolts are self threading and moving them around unnecessarily will start to loosen them. But again, if you need to tighten them to make them work, there's no problem.
It's unusual for someone to have a problem with the locking cams, but as you found out, occasionally one will be out of adjustment. Sometimes with use, one or both of the cam bolts can start to creep out of position. In that case, I've had good success with epoxy holding them in place after readjustment. I hope this answers your question. 
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