From TCI's site:
TCI - TECHNICAL INFORMATION: Frequently Asked Questions
What type of clearance should I have between the torque converter and flexplate before pulling the converter forward and bolting it to flexplate?
Answer: You should have 1/8" (.125") to 3/16" (.1875") between the torque converter and flexplate before pulling the converter forward and bolting it to flexplate. If you have more, washers/spacers are needed.
Is there an ideal way to measure the converter and transmission outside the car to make sure you should have the proper clearance between the converter and the flex plate before installation?
Answer: Yes, you can use a straight edge, laying it across the face of the bell housing. (Engine side) Then with the converter installed in transmission, take a ruler and measure the distance from the straight edge down to the mounting pad of the converter. The measurement should be as follows:
2004R will be about the same, 1-1/8".
GM Turbo-Hydramatic 4L60 1 1/8" from Bell housing to Pads.
GM Turbo-Hydramatic 4L60E 1 1/8" from Bell housing to Pads.
GM Turbo-Hydramatic 4L80E 1 1/8" from Bell housing to Pads.
GM Turbo-Hydramatic 350 1 1/8" from Bell housing to Pads.
GM Turbo-Hydramatic 400 1 3/16" from Bell housing to Pads.
What Brand/Type TC did you install?
It may have a crack, bad weld etc..
Need to clean it well, Brake Clean spray etc.. then blast some Baby or Talcum powder up in there to locate where it's coming from.
Get it up on some Jack Stands so you can see well.