I don't recall any axle alignment issues with mine, but when Dan did the conversion, he used a step bit on the drill which meant all my mounting holes remained concentric and aligned. I would assume you took a little too much off of one section and not enough off of another to land in this scenario.
To answer your question, yes the axle needs to be flush and square with the swing arm. If it is off, it will bind and it will cause mechanical failure.
To answer your question, yes the axle needs to be flush and square with the swing arm. If it is off, it will bind and it will cause mechanical failure.