Megasquirt 1 and 2 use calculated periods of time to guestimate spark advance. Megasquirt bases all advance off of a reference point which is your trigger angle. Megasquirt will then calculate how much time to wait past the trigger angle to fire the spark. It cannot fire a spark before the trigger angle because of this fact. The stock distributor acts as a 6 tooth wheel run at crank speed.
If you want to simply things immensely, drill 6 evenly spaced holes in the outside of your damper 60 degrees apart with the first one aligning with a hall sensor when the crank is at 60 degrees btdc on any cylinder. Thread the holes and install 6 1/4" ferrous metals studs/bolts in the damper. Don't forget to loctite them
Configure MS for 6 toothed wheel with a trigger angle of 60 degrees
Then transfer the distributor wiring to the hall sensor and continue to use the distributor but let the crank sensor do all the timing work. Just adjust your distributor however you want to achieve the best spark range. ie set it up so that the rotor is close to the correct spark tower with a crank angle range of 50 to +10 degrees or whatever works out. When you have the distributor timing and the timing pickup separated it makes things soo much easier.
In my experience I could achieve a 60 degree spark angle range without cross talk in the distributor cap. Based on some quick math, I believe you will need to go wasted spark if you need range larger then 60 degrees because of limitation with using a distributor cap.
Bottom line, when you separate the distributor cap from the MS trigger input angle you gain the freedom to choose an ideal trigger angle and an ideal distributor cap position without making sacrifices. With the stock setup and MS you have to sacrifice one or the other to achieve something that works because both are tied together in the same component - you turn one and the other turns too.