C W Burfle: I'm with you in not wanting to "Bind" the motor up, but I do like to remove as much excess backlash/thrusting that the armature will do to get a smoother running drive train. In some cases, I've used both new and older/used thrust washers to adjust the armature movement; even changing out the ball bearing cage to remove the play. So yes, do not bind the motor, but be sure you don't have too much backlash in the armature.
So how do you gauge the worm to axle gear mesh? Well you obviously can't do it like you would with an automotive rear end and blue gear tooth dye. also, the space is too confining for feeler gauges. I guess it comes down to a bit of "trial and error" along with experience.
If you tighten down the motor mounting screws and the motor has a hard time turning and clearing the gear teeth, then it is safe to say that the motor could use shimming. Start with a few thousandths spacer and try it again. I find that a good messed motor to gear, will allow the chassis to roll freely when pushed along a flat surface. Now, that's to say that no other problem exists with the side rod holes, or the wheel quartering or even the axle shaft bushings. The more miles on them and the more likely to have wear that will effect how good the unit will run with only a few parts replaced.
You also asked about where to add the washers if needed, top or bottom of the casting. I always look to match up the armature pole segments/laminations (where the wire is wound on the armature) so that it is in line with the field laminations of the casting. While this motor is an AC/DC Universal motor, it also has been called other names too (some not too nice by those who dislike the pullmore motor). Among them are: the AC/DC Universal Motor, A repulsion motor, and even a magnetic bearing motor. The repulsion factor is when the armature rotates around and the brushes energize and de-energize the armature poles. one pole becomes de-energized and gets "kicked around"/repulsed until another segment/pole is energized and another is de-energized. So rather than pulling the motor around, it is "Pushed"/repulsed around. The magnetic bearing motor term is nice in that it acts much as a plasma containment unit does in using magnets to fix a plasma core in a contained magnetic field (how's that for bringing the lowly pullmore motor into the 21st century!) The motor is electrically connected in series and as the field laminations on the casting are energized with the field building up as more power is applied, the armature of the motor will begin to rise up to match it's pole laminations with the ones of the field. In days of old, Lionel Corp. would have used spacer washers at the top of the armature to restrict the upward movement of the armature and they would have pressed against the oilite bushing in the brushplate. Newer Lionel, in some instances, did away with the brushplate bushing. To control the upward thrust of the armature, either the thrust washers were used at the casting level, or as has been seen, a set-screw was used in a tower at the top of the motor armature brushplate that could be set to the allowable thrust spec. The magnetic field also acts as a dynamic brake to keep the motor from "running away from its self" The stronger the motor field gets, harder it is for the armature to spin itself into oblivion.
Okay, too much info, but you get the picture: plasma containment/Pullmore motor. Dennis M.