First thing I would do is toss that topcap and shim. The topcap is non original to that headset and looks like garbage. That headset is one of the nicest you can buy, a scratched up VP topcap does not belong there.

Also, you will have a ****load more options by reducing a 1 1/8 stem for your bike - 1" stems aren't as widely available or in the variety of 1/8 stems anymore. However, you may find searching for a 1" stem you like still worthwhile as you won't need to use a shim. Keep that possibility in mind.