Ok so here is what happened.
I have an adapter pulley, that bolts on the end of my crankshaft using an Alan head bolt. Well the Alan head bolt, was chewed up and so we decided to use a normal bolt.
In doing this, we found marks on the head of the bolt from the pilot shaft indicating that it was to long/close. As a result of this the gears in the trans were toast.
So, I sent the trans off to California, a good friend of mine put all new gears in it, good to go.
But, I still had an issue. The clearance on the bolt/input shaft.
So I called a reputable trans shop here in Utah, asking if I could cut the input shaft to clear the bolt. The guy said, yes, in-fact you can cut it all the way to the splines, so that's what I did.
Now upon further research, this was not a good solution. I called the shop back, and looked at the replies on here and yes the trans would work, the clutch just would not work for a long period of time and bad things could happen.
So my bad for not asking more questions before acting.
So yesterday took engine/trans back out of car, now, the trans is heading back to California for new input shaft.
So my question was does the Pilot shaft have to be in the pilot shaft bearing to function properly?
Indeed, yes it does.
Lesson learned!
TIA
Clay