Yes, use the elongated slot. A piece of a drill bit with the right size is what I use as key. And the max advance should be used when timing, if the lever is at right, the lever should be as far up as possible. It is better to remove the spring as you need to be sure the (interrupter)ring is pushed firmly against the housing when checking breaker gap (0,4mm .015-.016") and timing because the slightest play will alter the breaker gap and of course the timing point. The spark plug gap should be 0,4-0,6mm. (.015"-.023") 0,5mm is good.
Originally of course the gear marks should line up, but as the magneto gear could have been changed, the mark may be off by one or several cogs! Set all gears according to the marks but leave the magneto gear loose on the shaft, free to spin (or remove it) Then turn the engine and set the rear piston where you want it to ignite (I recommend not more than 8-9mm 5/16") turn the magneto (the ring fully advanced) to where the cam* just breaks the points and try to see if the magneto gear key corresponds with the gear. If that doesn't line up, you need to reposition the gear to where the key can be inserted.
*Right now I can't remember if it is the short or long cam that breaks for the rear cylinder. The front hot wire is going to the rear cylinder. But when all is OK and the mag gear is cogged right, if you turn the engine back so the (other) gear markings line up, the breaker sliding block should point at the lower right cover bolt on the magneto, and rest in the short window between cams in the ring.
Fine tuning can be made at the controlwire sheath clamp when the handle is at full stop or unfasten the ring band clamp for the lever, and turn the ring. Or a small adjustment of the breaker gap. If the ring hits the stop before you achieve the timing you want, then you need to reposition the driver gear to another cog. Check timing on the front cylinder also, worn interrupter ring can alter the timing between cylinders a lot.
I use to adjust the wire so max advance is at the handlebar end stop, to avoid excessive strain on the ring stop. The handlebar range can be too short for comfort with a too short ring lever, the ring lever can be made longer if you want more range at the handlebar handle. I don't really find a need for a return spring with the piano control wire, it is only needed with a flexible bowden wire.
The flat spring that pushes on the cap is important, it has to keep the ring pressed against the housing. With the cap on, be sure the ring moves smooth without any play or gap especially at the end positions.
There was an excellent site about the D-type mag, on a site for BMW military motorcycles, but that is gone now. I sampled all sides from it but somehow the owner got into my computer and deleted it all! Only pictures remained. If anyone has those with the description text I'd be thankful if shared!
For the 600cc (37ci) engine the factory max advance recommendation is 5,5mm (7/32"). With the D-type magneto timing range, that makes the max retard timing to maybe 5-6mm after top dead center so you might want to restrict the ring range a bit. Max retard should be zero or maybe some mm after dead center at the most, or engine damage can occure after long time running on max retard. Really with that small max advance as only 5,5mm on the 37ci engines, you don't need the adjustment at all, the magneto can be locked on fully advance at all times.
