speedo cable routing

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I have the original top hat and wheel bearings to hand. The bearing ID is 0.675", the top hat OD is 0.675", the top hat ID is 0.58" ish. The Top Hat spacer wall thickness is about 0.04", *2 is 0.08" so you have that much free space between the axle and the wheel bearing without the spacer.

The TH spacer is 0.3" deep and the speedo drive is about .835" deep so fitting it outside does not reach the bearing. The purpose of the TH spacer is to engage the axle and wheel bearing. The flange also holds the speedo drive off the hub and prevents distortion of the drive when the axle is tightened.
On my bikes, the spacer we are calling the top hat (06-7629) does not mate with the bearing. It mates with spacer 06-7704, which sits against the bearing. Even though my top hat spacer is outside the speedo drive housing it still slides inside the 06-7704 spacer. The free space you mention between the axel and the bearing is taken up by the bearing spacer 06-2069. I have attached Jeff Carlson's drawing that was posted here a while ago. (Note that Jeff called 06-7704 the top hat, to add to our confusion).
speedo cable routing
 
I suppose the top hat spacer is for the purpose of allowing one or two "universal" gearboxes to fit dozens of bikes .... Smith's makes a few universal gearboxes and the bike mfgr makes one work by his own spacer. The spacer adapts Smith's central hole to the mfgr's axle diameter, as well as providing necessary clearances.

I have never heard of the spacer fitted inside the gearbox (that does not mean it never happened). I am the original owner of my Atlas, and I can testify the spacer was factory fitted from the outside.

If I were to swap the spacer to the inside, there would be nothing to center the gearbox on the axle, except perhaps, the drive dogs. I would not be comfortable with that arrangement.

Slick

I think this is probably the final word on this mystery.

The axle is a precise, tight fit through my gearbox, obviously this is NOT the same for others here. Wouldn't be the first weird inconsistency in english engineering, won't be the last.
 
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