Sorry to hear it wasn't a drop in. For the hard mount 03, I used the Moose racing replacement bearings for the KTM525 which measures the same as stock KTM bearings. Sounds like the bearing race c-bores in your stem may be deeper than the 03's? or the bearing height may be less? If so, you may be able to drop in a precision machined washer that goes between the bearing top and dust cover / triple clamp to get the clearance.
Also, if you have rubbing on the underside of the top triple clamp, sounds like the dust cover isn't installed. I used the stock Sportster dust cover with a larger drilled hole to fit the larger diameter KTM stem. It mounts between the bearing and the triple clamp.
REF: KTM bearings from Moose Racing p/n0410-0034