Was this block intended for a copper headgasket and then a non compressable steel fire ring on the composite headgasket fubar'd the works? That would be a huge oversight. I tried my best to stay away from copper headgaskets due to sealing issues (that usually can be solved with hylomar or maybe indian shellac) but when you have a block grooved you must have a complete headgasket setup in mind before ordering the work. Some shops should be smart enough to ask. If they don't, they will probably machine for a copper headgasket that will be able to squish and accept a steel wire massively protruding from the block.
The groove should be big enough that the wire can actually overlap slightly at the ends. Honestly we need a picture of the groove because it does sorta look like a step from the pictures. I myself have run straight copper wire with no groove and it will hold it self until you face detonation that will blow the motor if it held with an MLS gasket. Copper crushes and turns into a flat sealing ring. I have also run with welding wire in a 20 year old used composite headgasket, no groove, copper sprayed. Wire stayed put because it was able to sink into the headgasket which did not have much of a fire ring on one side. I used that to my advantage. Both of these setups were intended to have just few thousands of clearance beyond the headgasket. So for the composite headgasket setup, I chose welding wire of the proper diameter to meet the protrusion I demanded..
A proper Steel O ring setup only extends a few thousands above the block when run with an MLS gasket. This is because the steel ring will not compress. You don't want the fire ring taking ALL the load. That will beat it up in short order. A copper ring (not as strong but it will reseal if used in a groove style setup) needs to be up 2-3x as high as steel rings because they deform.
I have done some very ghetto things with headgaskets and had great success. Just requires thinking about how.
First hit on google if you search "headgasket oring" = my vid
http://www.youtube.com/watch?v=2tKzyCaBvdg
Apparently I was nice enough to include video information I don't remember. A .012" thick copper wire compressed to only .004" which is near the top of what you want a steel O ring to protrude. Apparently I then tried a .022" copper wire on a different MLS gasket and suffered an oil leak. I can't really prove that the leak was caused by the copper not compressing enough as the MLS gasket was used junkyard stuff that I found in the shed.
****We really need a better picture of the groove and the wire inside and a protrusion measurement. I would assume you can measure that with a straight edge and some feeler guages.