Yes, the symptoms you describe are probably because the actuator rod needs to be longer. What is probably happening is what happened when I fitted an STM slave cylinder to my bike. Because it needed the longer rod the slave piston was pushing out until it hit the boss on the crankcase cover i.e. solid metal so it resulted in a solid lever.
I fitted the STM like that initially because my bike was registered in 2001 and was supposed to have the longer rod (they changed them for 2001 bikes) it turns out my bike was made in late 2000 so still had the short one.
STM supplied a spacer about 10mm long and the same diameter as the hole in the slave, just slipped that in and it cured the problem with the rod. You might be able to do something similar.
Jools
Threaded Mode