Tonight I actually removed the hatch, well unbolted and slid it out of the way enough to get to the latches, and ground down the latches to about 1/2 their original thickness, then went and then sanded the mounting areas on the hatch down with a 3M pad in my drill. After a few tries I had the hatch down about 1/16-1/32 below the edge of the roof instead of about 1/16 above it. Also adjusted it to close that gap up slightly on top, so I am happy with it.
I think I will be using a thin strip of adhesive backed foam to fill the gap all the way around the hatch to make it nice and seamless.
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