Here are some links pertaining to Chevrolets on the subject (I have a Vette)
[ame]https://www.youtube.com/watch?v=rzc2tmFKUhI[/ame]
[ame]https://www.youtube.com/watch?v=vO9f4FhK13U[/ame]
Several good pictures of dial indicator set ups in this link:
Centering Bellhousing Question... - Corvette Forum
It is a puzzle in how to set up the mag mount. Some have resorted to mounting it on the end of the crank flange but most of us don't feel that is a stable enough mount. Installing the flywheel and mounting the base to it is the most stable way. Your right that usually you can't position the dial indicator square in the opening. I usually end up with it just inside and a slight lean on the track pin. That throws a slight amount of error into the actual reading but it's uniform all around the opening so it doesn't really compromise the process.
Good luck.