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I think AE made a mistake in their manual with their CVD upgrade kit. The spacers (not included with the kit nor were the part #7364 hubs ) should go on the inside and not the outside or the dog bones fall right out.

It worked out OK on the outside with my rere World's because it is only a shelf queen and I used shock piston rods from something else because it was all for show and not function. Trying to use these on an actual runner with rear suspension travel that worked just fine is a different story.

That's an interesting way to do it...

The diagram is correct. The blue spacer is designed to keep the wheel from touching anything but the inner race of the bearing when the nut is tightened. Yes, it may be too thick and cause issues if your right height is set too high in the rear, but it certainly wasn't intended to be used on the inside.

The rear hubs should not be included because Associated has no idea what hubs your car is currently using. Including them would be waste for probably 2/3rds of the cars the CVAs were bought to be installed on.