Before you drop the head on...you need to PM me your address for a pair of O-rings that will stop the oil leak from the oil ports that WILL happen if you don't use them. The ones in all the gasket kits are too thin. I just finished rebuilding a K5 with the CycleX gasket kit, and these O-rings in that kit were too thin, like all the others out there.
I think I actually read every head O-ring thread out there last night and I definitely saw your message in a few places on this. I checked the depth of the O-ring slot on the cylinders, and it looked to be .7mm. My gasket is 1mm (.04in), resulting in a total height of 1.7mm. The CycleX kit supplies a 2.5mm ring, resulting in a ~32% compression, which I believe is about what it should be. Was the K5 you rebuilt decked by Cycle X? They may have taken more off of my cylinders to account for this.
Also, great to meet you Mark! Just wanted to write out a sincere thank you for creating your book which I've been using to rebuild this engine. You've helped me understand and love a motorcycle that's over 30 years older than me, and many more people to come I'm sure.
SOLVED: Regarding the original question on this post, I ended up sticking the head on without the gasket, but with the dowels and O-rings in place. The O-rings actually expanded outside of their slots, which I previously assumed to be wrong, but the MLS gasket looks designed to receive this expansion, so we should be good to go. The gap between the head and the cylinders was only .034in for a .040in gasket though, so I will be taking about .010 off of the dowels to help me sleep at night.