well, turns out I have a stem that's enough shorter to have about 4-5mm at the top. Personally, I like my face, so I'll treat as well as you treat yours...heck, maybe even better, I don't know. Anyway, the short conclusion is the other stem puts enough meet on the clamping section of the steerer to be "safe" so the bike goes on I guess...but without the drop bars I was going to use since they are 31.8 and the stem that works is 26.

This brings up a question...what exactly IS the mode of failure if one were to ride a setup like in the photo? In a way, it doesn't seem like it would be much weaker than a steerer shimmed up say 60-70mm...which I see from time to time.

But, again, as I told a 4 year old today who was showing off his helmet....your head gets more valuable every year, so I'll gladly err on the side of caution.

Interesting idea of shaving the head tube...or, rather, the lug. Is that what you meant? I seriously doubt I'd do that, but it's an interesting idea. Would the heat from cutting weaken the head tube?