I've done what you said, with a couple of different bits of stock a few times and yes the high point is always in line with jaw 2.

I think the jaws that are in there are soft jaws since there are machining marks on them and when I filed off the burrs it felt like mild steel.

I put the other (definitely soft) jaws in and found that one jaw was in the wrong place. It turns out that I have to mount them in the order 2-3-1 for them to meet at the centre. They seem fine then.

Found a C spanner on eBay to get the chuck off:

http://cgi.ebay.co.uk/Harrison-LO-Ta...item53e2a6afd7

I think that's the right one. Cheaper to CNC mill my own though.