In process of finishing up timing belt change & have run into a problem: the rubber gasket on the timing belt cover is totally too big & we cannot figure out why -- wondering if the wrong one was installed originally or what. There is no way to line up the gasket with the bolt holes -- there's at least a 1/2" of slack. Are we doing something wrong here?

If it's the bottom gasket, it's probably just swelled a little from an oil leak.

 

Mine was the same way. If yours is the same as mine, you line up the holes and loop the excess into what appears to be some type of drain hole next to left most hole of the cover - it's looks like a square cut-out right next to the hole. For ease of assembly, you can use some weatherstripping adhesive (or whatever gasketmaker/sealant you have on hand) to affix the the gasket to the cover. Line up all the holes, flip the cover upside down onto a clean, flat surface, and put a telephone book or your sevice manual on top of it to let it set up. Make sure you clean up the gasket and cover first so that mating surfaces are free of oil.

 

I've never seen a new gaket so it's hard to say whether this is by design or just a result of oil contamination. It might be advisable to order a new bottom gasket for the next t-belt service.

Those gaskets "grow" when soaked with oil and heat over time. In order of preference: get a new gasket, trim/stuff/tweak old gasket to fit, or simply ditch the gasket.