No, not too deep. The bolster is sitting perfectly in the cutout of the lock. I would have to raise the muzzle more than 2" to get the alignment correct back at the breech without extreme bending of the hammer.
What I don't see on your breech is the extra bit of casting on the top of the drum portion. It is .125" and it moves the nipple up that extra bit taking everything out of alignment.
I could bend the hammer a bit and make a typical pistol nipple work, but believe that with the (tiny) nipple, everything would be fine.
If I swap the hammer for one found on L&R's Warranted lock, it would work quite well with a typical pistol nipple (tried it), but as I stated, I like the look better with the stock hammer which appears more (compact).
Alternately, I could file back that extra casting, taking it down near where the (drum) actually is, and that also would lower the nipple allowing everything to line up better (see pic).
I have read a note from Pete saying this is/was added to ensure that longer threaded nipples don't extend too far into the drum, but that is not an issue with the nipples I have (laying around).