The biggest concern with a loose-fitting distributor is the possibility of getting an intermittent ground. You could, and probably should run a ground wire from the distributor housing to the block. Since the housing is constantly in motion due to the vacuum advance, use a piece of very flexible wire, like the test leads for a voltmeter use. Regular primary wire will get fatigued and break pretty quickly. You could also press a sleeve of exhaust pipe tubing over the distributor housing and machine it to a closer fit with the hole in the block.
Jerry
