With such a problem in conjunction with a tank bib, I found the bib was simply too thick thereby raising the outer chrome housing too much. That was using a bib that fit under the chrome housing by maybe 1/4". I was able to remove the bib and literally sanded down the side that faces the tank. After a few times, I got the bib thin enough on the part that was under the chrome housing. Before messing with the bib, try removing it and then use the key. If it seems to work ok without the bib in place, that's your answer.
