ok, heres an update with no success.

chain is center to center 1", nothing wrong with it...but i'm wonder if its the compatibility of the chain now...should i get the sram pc1091r?

I left the wavy and plastic out. when installed there is lateral movement. so i used the pre load washer that is equipped on the arm (non drive side) and left a small gap and tightened. the drive side is completely flush to the frame and still spins smooth and no play or lateral movement. i'm assuming that is what the PRELOAD washer is for! correct me if my assumptions are flawed.

problem persists. but i now notice the its as it should be when chain is only at 5 or 6th cog!...everything else is rub up front on small chainring... based on this i thought maybe its a chain issue. my current one is KMC 10 speed as listed on first post.

please please anybody think or believe this could be a possibility? I will take a picture of what it looks like later...thanks guys