I think your mistake is that you are attempting to correct the pattern by adjusting the pinion depth. That is why a pinion depth tool is used. As Pontiac455 described, the pinion depth is a relationship between the face of the pinion gear and the center line of the axles. There is only one correct pinion depth for a given pinion gear. That is why I said to re-use the original pinion shim if you don't have access to a depth tool. It is probably right on or very close. Once you get the pre-load on the pinion bearings done, then you make your backlash adjustments by moving the carrier back and forth. The pinion depth should only be adjusted again as a rare last resort. Once you have the backlash correct, and the carrier bearings pre-load, if you still have a crazy tooth contact pattern then something is very wrong. EDIT: did you use new bearings or the old ones?