Andrew R Stewart 

First thing I see is that the cage inner plate is upside down, allowing the top (which should be the bottom) to touch the cogs. This could be the grinding you speak of. If you remove the cable and move the der by your hand only while looking at the limit screw ends you'll see the tabs the screws woud contact to limit the der's movement range. IIRC the upper screw does the low (that's the big cog) limit and the other the high (the smallest cog) limit. But it's easy to see the tabs and screw ends and how they relate to each other. This grade of der doesn't have any spring tension adjustability. So chain length will be the method to set upper pulley/large cog contact. Andy.