Guys, I might have fixed it. I fired 7 caps, and there was definitely an improvement. It seems as if I do my part and get the caps down flush with nipple using dowel it goes off. I got a 3 hammer drops without ignition, but it was also dark and I know for a fact that one cap was not flush. The other two were hard to tell in the dark. Plus its snowing and -6 degrees tonight so I couldn't fiddle with it very long.
I came in afterwards and cleaned the nipple with a file so that the caps will fit it better because I had dry fired it while playing with it. So this will definitely ensure that the caps seat better, even without a dowel. Right now they seat just like they do on a brand new nipple. So it can only help. And there was already an improvement after the fix to begin with. I still may have to align the hammer in the end. But right now it's actually looking pretty good.
As soon as this weather breaks I'll be able to tell you more, but this is very promising