That should be OK. When you insert it into the housing, if you twist it around it should drop in fully. You should know when you get it: it will make a big difference in depth and you should be able to feel more resistance when you turn the gear by hand.
i did notice when i reinstalled the speed sensor and went ot align the right gear range with the dot...i couldnt get it to completely line up and still get the bracket to go into the little notches....will that matter?
At the transfer case:
The Wht/Orange at the transfer case should show 4 to 5 volts referenced to ground with the key in the ON position
Orange should show 7 to 8 volts when referenced to ground with the key in the ON position.
Black should show continuity with ground (looks like you have that one correct)
Next, pull the wiring harness off the vehicle speed sensor on the transfer case. With the key in the ON position, Get a paper clip or spare wire and jumper the Wt/Or wire with the Blk wire. Connect and disconnect them rapidly, does the speedometer flutter or move while you do this? (You are doing this to the wire side that runs back to the cab)
If those all look correct, then we can check out the under dash wiring.