JoeFrantz, thanks. Almost home free.
The seal has to be oriented correctly towards with the ledge and some persuasion of the ring as you suggested. Still not done yet, the final few turns of the screw seem to be taking more force than I'm willing to try now which means the ring is under a fair bit of tension. I'll leave that battle for another day. The PO has already stripped the head somewhat.
Fitment look OK ?
P.S. Good to know I'm not the first to enjoy the wonders of minimalist German engineering.
http://forums.pelicanparts.com/porsche-911-technical-forum/66075-stumped-simple-rubber-thingy-headlight-gaskets.html
http://forums.pelicanparts.com/porsche-911-technical-forum/315770-striped-my-headlight-thread-bottom-need-help.html