Thanks for the replies!
Did you use guide pins in the top 2 holes in the bell housing when you installed it?
We did not remove the bell housing. The bell housing is attached to the engine and the frame, with the transmission hanging off the back of it. See the pic showing the trans before removal.
Even with a plastic alignment tool, it can be tough to get the shaft into the pilot bearing. I've pried on the clutch arm to release the clutch disc and it slips right in place.
We did use the plastic alignment tool and can see how that might get you close, but not as close as if we used an original metal shaft. We are supposed to pick up all the spare transmission parts from the shop we use to rebuild ours. Maybe we can realign the clutch with the spare shaft, but I will try to pry the clutch arm first to see if that gets the transmission in.
The only way the pilot bushing could be installed crooked is if the crankshaft is bored crooked, and that's not likely.
The engine has never been rebuilt or changed, so I agree with you that the pilot bushing cannot be installed crooked like the transmission place told my friend.