In my opinion the derailleur could go down a bit. I know it worked before, but perhaps the pivots have developed play. Also check the inside of the outer cage for wear. A chain can rub its way right through the cage eventually, and if it has worn it at all it could compromise shifting. You can always cheat and bend the rear part in a bit. Usually does not affect other gears as the lower part is usually not in play when riding typical gears.