Today i swaped engines got every thing up and running. EA82 86 wagon. Was running fine idlle was good had small tick but it set for two years so i think it should go away engine has only 96.000 miles on it. Then i started fine tunning when ohhhnoooo! rear main seal starts gushhing oil shut down pull engine inspect oil soaked rear main and nottice that its in past being flush with the block and kind of cockeyed on the crank so off to auto parts store to get new one had to order it, will have it tommorow. So my question is should the seal be flush with the outer egde of the block or should it be in the block some what? and what is the best way of seating that seal?

Flush with the block and no further. Tap it in with a rubber mallet.

Make sure to use some grease on the inside edge, and I use a bit of silicone on the outside edge to hold it in place. They get pretty old and brittle if the engine is not run for a while. Just replaced an engine recently with one that was sitting for a few years - luckily I noticed the old seal was hard, and happened to have a new one on hand for the occasion. Good way to remove the old one is to screw a couple wood screws into the seal itself and pull it out with pliers.