A 1999 bike. That's interesting.

I seem to remember a bulletin from Shimano during that era suggesting adjusting the upper pulley to the outside of the smallest rear cog just as you indicated. That was a long time ago so take that for what it's worth.

A couple of additional points:
1. I'm a big fan of checking derailleur hanger alignment. It's common for a bike that old to have had the hanger bent inward a skosh. No other adjustment will correct a misaligned derailleur hanger.
2. I adjust derailleurs to be functional. If it works best adjusted to the outer edge of the cog - that's OK with me.