1 1/8". What you're seeing is a typo.

Hard to say what's causing the headset noise without being in front of the bike. My best guess is that when you reinstalled the fork, you over-tightened the bearings. That could cause them to grind and feel gritty. If the bearings are cartridge, or if they're loose-ball with a bearing retainer, then it's possible they were installed upside-down when you put the bike back together. In any event, as long as nothing's broken/missing, your LBS should set you straight with a minimum of expense.