It's a hair deep, but if you change it again I think you'll move the pattern off the top edge of the tooth. A little too deep is better (and stronger) than a little too shallow IMO.
Assuming backlash is good, run it.
With it being a little deep, I would do a by the book break in just to be safe.
I have not looked at this in a while since I have been on Vacation and I am sure the axle is set up by now. But at 35 in lbs mark my words-within less than a year you will burn them up. I realize Jody has experience with axles, But I set over 20 axles a week. I see failures due to people overloading pinion bearings all the time. I know what the FSM says. The FSM on says to set things a different way on alot of different axles, but after setting up axles for many years you learn what works and does not. I could ramble on and on about this, But 35 in lbs.....wow
Well I adjusted my pinion depth again and I got it down to around 20 in pounds with dry bearings. I had to go back in my front axle this week to replace a spacer in my aussie locker that I found out was missing since this is the first time I have ever been in this axle as I bought it set up. I just needed my jeep for memorial day weekend. But it has loosened up some and I think its going to be fine. I also got a couple of the more experienced guys in the shop to take a look at it and give there opinion and they all gave the ok so im pretty confident it should be fine.