Nope, that should be fine. Seen similar work, like slots machined into the balancer. Only true way to tell would be to scope it
Rob knows the VEMs well, but if you can get a stronger signal by just a quick tweak, worth a shot
Most OEMs have a fairly high output at cranking and a narrow clearance of about 0.5-1mm. If it has a higher output, more likely to trigger (and also helps to give a signal when the starter is less than healthy and reluctant to turn the engine over nice and fast!)
Not saying this is your problem, just providing an educated guess! Also, not sure if this has been said but make sure the polarity is right for the sensor. This caused me no end of grief in the past, had to do a trigger log and use that funky perl script to find that out. Or you could just try swapping the wires round lol.
Good luck!
-Gavin