Guys,
I position my flash hole center to be at the same level as the top surface of the top of the pan. Another way of describing the position: If you sight along the exact top surface of the flash pan towards the barrel side, you should only see 1/2 of the flash hole.
To have the flash hole slightly higher is OK, but to have it lower leaads to slower ignition, at least that is my experience. You see, the flash of the burning pan powder ignites the main powder charge, and this flash moves very quickly the 1/4 inch or so from the flash pan to the main powder charge. Listen to a well made flintlock gun go off and you may hear the click of the flint striking the frizzen, quickly followed by the bang. If you hear a click - SSSS - bang, then something is not working properly. Surely we have all experienced those dreaded hang fires where you have time to recite the Gettysburg Address during the SSSSS!
I believe what often happens is that the flash hole is too low in the pan, is filled with powder and acts like a short fuse to ignite the powder. The quickest ignition is when the flash hole is open and clear to allow the flash to travel through to the main powder charge. Liners simply make the path the flash travels very short, thereby quicker and more reliable, but you still do not position the liner hole at the bottom of the pan.
Looking at Dan's photo it appears to me that the flash hole is slightly higher than the top pan surface, and probably gives very fast ignition.
After all, we call it a flash hole - not a short fuse hole.
Jim