Thanks for all the help and tips.

First off to clarify it is an 11T-32T XT cassette. The steel-lock ring from the old 8spd (12T-28T) cassette does not fit the 11T cog so I have to use the new lock-ring or the Token option recommended by Nigel.

Next the splines are not cut down like CliffordK's photo above (left), in fact they seem to be set up to handle both a cassette and a screw on block.



My options would seem to be:
a. discard the spacer and grind the end of the splines off - tricky because they will be hardened and if I take too much off the 11T cog will slip
b. keep the spacer and grind the spacer to down to allow for another 1 to 1&1/2 threads to engage.
c. keep the spacer and use a longer lock-ring such as the Token.

I'll post back with my preferred solution once I have decided.