It doesn't matter if the distributor was a tooth off. It will not effect timing at all. The only crucial thing when dropping a distributor in would be getting the plug wires in the right place on the cap after you dropped it in, #1 in the right place and the wires in their proper order. It sounds like you have that correct or it wouldn't run the way you describe it. If the cam/timing chain was a tooth off the engine wouldn't run. What could be going on with the timing mark being off; Sometimes an old harmonic balancer will 'slip'. The outer part will break loose and turn a little and your timing mark will be off. Try setting it up by ear like Mark described. What distributor do you have?
