Originally Posted by Dave Mayer

I've owned these calipers, along with the Shimano 600 versions. I suspect the main pivot bolt is bent. I'm not a fan of bending or straightening threaded bolts or rods, due to the risk of cracking and failure, at perhaps the most critical part of the bike. If the threaded bolt fails here, the front brake comes shooting off of the front of the bike, dangling around on the end of the brake housing, until it gets caught up in the wheel, and then things get fun.

Second issue, having owned these brakes, I can testify that even with great pads and perfect setup, they were among the most underwhelming calipers I've every used. Flexy arms and low mechanical advantage due to the short arms. I don't know what Shimano was thinking with these. Any dual-pivot caliper on the front will be an improvement, such as the next generation Shimano 105, RX100 or RSX or whatever.

I suggest you proceed directly past any fixes or further diagnosis on this, and get yourself a better caliper.