Hello. I had a similar experience with a YYF Daydream I recently bought, which I think is manufactured with the same innards. It had a serious vibration problem from the first throw and I thought I had gotten a lemon. Fortunately, its performance improved when I changed to a different bearing (it happened to be a YoyoJam speed bearing) and tightened it so that the arrows lined up. I’m not sure why a different bearing improved things because the stock center track spins fine and is quite smooth in the yoyo I switched it to. I guess sometimes the bearing just doesn’t line up properly on the seat.
As for how the axle goes in 7/8s of the way before hitting threading, if I understand your concern, I think that’s just how most nut and bolt design yoyos are. My Daydream (among others) does this too.
I hope that helps.