Joined: Sep 2005
Posts: 2,998
Likes: 302
From: Hervey Bay, Qld, Australia.
Bikes: Colnago (82, 85, 89, 90, 91, 96, 03), 85 Cinelli, 90 Rossin, 83 Alan, 82 Bianchi, 78 Fountain, 2 x Pinarello, Malvern Star (37), Hillman (70's), 80's Beretto Lo-Pro Track, 80's Kenevans Lo-Pro, Columbus Max (95), DeGrandi (80's) Track.
Personally, I don't think 1/8" is going to matter too much. It is a long stem though and you might find that it creaks when you are standing on the pedals, rocking the bike back and forth, going up a hill.
You say that you may be able to cut an inch or so off the bottom of the stem to give you the height you really would like to achieve. I cannot see anything wrong with that as it would reduce the 'turning moment' and the insertion length would remain the same (approx. 3"). Make sure you are able to do this and still retain the clamping action, and, can the bolt accomodate the shortening of the stem?
Have you investigated what is stopping the stem from going further down the steerer tube?