One thing I noticed is that the piston seal isn't exactly tight around the piston. There's a half a centimeter of gap. Any chance that'd be messing me up?
Might be, the seal has to, .....well it has to seal both the piston and bore. The seal is normally a pretty tight fit part over the piston lip... it should fight you a bit, needed some brake fluid or assembly lube to get in place..
its possible the seal is not the correct size or has otherwise been damaged by solvents.
Now, don't shake your head just yet, read all the way though... I too thought this was BS Internet lore, till I tired it.
Rubber parts swell or stretch when they get petroleum products on them, most times thats solvent of some sort.
Many times that petroleum product can be removed from the rubber and the part will return to its designed shape/ size.. WHO you ask...???
Put the rubber part in boiling water and let it stew for 5-7 min, remove, cool in cold water, check fit, if still over sized, boil for 10 min, cool try again.
Ive done this with rubber carb gaskets, O rings and a few other petroleum product soaked rubber parts and it just plain works.
That said, if its the wrong seal and just not the right size this will not work.
Pro Marriage Tip: Do not use your spouses favorite pan to do this in...use something old..if none on hand, go hit the dollar store or salvation army/ good will store.