Rear main seal is not seated all of the way...will I have problems if...
 

I just installed the RMS and I ran my finger around the block bevel and part of the seal (very very little) is barely sticking out. Is this acceptable? When I install the flywheel will it push it back in? Could this cause the RMS to leak? I slammed this thing a million times with a rubber mallet and it wont go in anymore.

Yes, it will leak.....

Get a 4" capped drainage pipe and use that to set it in. There is another thread going on right now about this same thing with a good picture of a RMS set properly.