I removed the paper gasket on a diamond drive and just used RTV silicone. Ended up having clearance issues and ruining the bearing in less than 100 miles. That gasket provided just enough spacing that the bearing didn't get a side load on it. My brother in law removed the spacer and put a double row bearing in. He had a similar problem with not enough clearance because the double row bearing was a little wider than the single row and spacer combined. His did last a lot longer than mine though but in the end also wiped out the bearing. Been a while but it seems like you can put your case together dry with different shims (cereal box cardboard) between the case halves and feel the clearance by moving the shaft. Then remove the shims and see if you can still feel movement. If you can't feel movement then you need the gasket or you need to machine the shoulder of the shaft so the bearing can slide on further so it doesn't have a side load on it. This is in regards to a 2009 - 2010 M8 but probably applies to several other models.
