I installed it with the two ceramic pieces touching each other. based it roughly on this video here: http://www.youtube.com/watch?v=WT6FaK3MX4o

However, since you mention it.. I see in the comments a few people mention he installed the seal backwards. They're only 10 bucks for the seal locally, but I'm on seal#2 already (touched the ceramic surface on accident with the first )

I got some local pool guy coming out tomorrow at 9am. He's only charging 40 bucks for the trip, and if he can get it fixed up for that I guess I'll be happy. Other than maybe having screwed the seal up again, I can't imagine that i damaged any other parts.