So I looked into this further. Attached is the mower lift linkage diagram from the service manual with additional marks by me. I don't know what these parts are called.
Nob 4 causes a metal "Slide" that I marked as "A" to a position between "B" and "C". This is what causes the mower deck to stop at the set height.
The reason that the knob cannot be turned unless the 3PH is all the way up is because the weight of the deck is on "A".
With the deck all the way up the gap between "B" and "C" is larger than thickness of "A", if it was not it could not be moved into position. The difference between the gap and the thickness of "A" determines how far the deck will lower when the knob is in the locked position. I can only guess as to why some see a drop and others don't is that this gap can be different due to manufacturing variances.
There is nothing that can be adjusted to reduce the gap on your particular machine. I did find a video where the person modified "A" to be thicker and thus reduce the drop. In the same video if you watch you will see that a gap of just 1/8 of an inch translated into over an inch of drop in the mower deck.
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