That explains the spacer, then.
The 530 oring chain will grind into that rubber case plug, unless the front sprocket is offset away from the engine case an amount equal to the extra width of the oring chain over the width of a standard.
If you mill the outside face of the front sprocket flat with the tooth face, that is enough, and that spacer will be of some use then, (used on the inside of the sprocket that wasn't milled).
Or, you need to find an after-market sprocket vendor that offsets the tooth points an extra 1/8" away from the engine case.
Or, use a standard 530 or DID50 chain as it came with in stock form.
Or, convert to a 520 oring chain along with both front and rear sprocket changes.