the ring sits too far in and therefore when I screw the nut it touches the rubber seal

Same problem I had. The ring should be long enough to extend past the seal. This could have been accomplished by the bearings bore depth being shorter, or just using a longer tube. Preferably a shorter bore depth to solve the next problem.

the back bearing is flush with the housing and the front bearing sits inside the housing by about 1/8"

That is fine. The cap on the front has an extruded circular portion on it, that is supposed to mate against the outer race of the front bearing. It must extrude at least the 1/8", preferably a tad bit more. My set did NOT extrude the 1/8", hence a shorter bore depth would have also solved this problem as well. If the outer races of the bearings are not sandwiched firmly within the bearing housing, then the whole concept is useless.

should I have a space between the 2 bearings inside the housing?

As I stated earlier, the outer races must be held firmly inside the housing. There should be no movement of the outer races. When you tighten up the nut, it compresses the inner races together, taking out any play between the bearings. With those cheap bearings, however, you may have to place an outer race shim between the two bearings, in order for all the slack to be taken up. Otherwise the inner races mate together, and there is STILL play within the bearings.
Like Rich stated, you only need to tighten the nut until the slack is gone in the bearings. You don't need to tighten it very much. The screw should turn VERY easily, without much resistance at all. Keep in mind, the bearings should be oriented in a back-to-back configuration.

Thinking which way will be the easiest to correct my problem

Finding a ring with the right diameter and wall thickness to extend the existing one looks almost impossible to me so I think it may be easier to make some shims and place them between the bearings.

Another alternative I’m thinking is to push both bearings towards the front. This will push the ring pass the rubber seal in front. Doing this looks like the best alternative unless I miss something. The threads of the ballscrew will sit against the rear bearing and when I tight the nut in the front will keep the bearings in place. This assumes that there is nothing in the pillow block casting to prevent the movement of bearings.

What do you think Sam?

Also how did you fix you problem; with a new longer ring? Where did you find the longer ring?

I think the bearings should be seated in thier respective housing. If they were to touch each other on the OD it should not affect performance. You will feel any unwanted friction much like Rich described above. He's got this friction stuff down to a science, lol. Good thing that you have all the parts after all.

Robert

I put the nut in the lathe and turned the shoulder on it longer, placed some shims between the bearings, and fixed the multiple problems with the cap on the front. I realize you do not have the options that I had, and you actually may not have all the problems that I had, so I certainly don't want to send you down the wrong path on anything.
The bearings will not go any further forward than the cap will allow. They may already be as forward as they will go. Mine had about .03" gap between the cap and the bearing, which allowed the whole assembly to float that much. Yours may be fine.
You only need to shim between the bearings (outer race) if tightening the nut will not take out all the slack between the bearings.

Thanks Sam for the great help

I spent quite some time today to analyze what is going on with these bearings and finally I noticed that snagging the nut against the font rubber seal, the raised face of the nut does not rub against the seal.

The reason is that the seal is concave towards the center and this prevents the raised face of the nut to rub against it. To confirm this, I removed the ring and tuned the nut by hand and I definitely noticed the friction between the rubber and metal and putting back the ring I definitely noticed the nut tuning like a bearing – no friction at all.

So now I’m in the process to put back the two bearings I removed and all should be fine

Thank you all

You only need to shim between the bearings (outer race) if tightening the nut will not take out all the slack between the bearings.

Just in case I need to shim down the line:

When you say to shim between the bearings I will assume you mean the two bearings inside the pillow block

But what do you mean by (outer race)?

http://www.motorera.com/dictionary/pics/r/race.jpg
Placing a shim between the outer races increases the distance between the inner races, and allows more slack to be taken up from tightening the nut.

That is very good Sam, thank you