In the process of converting from auto to t56 manual gearbox. When putting the new manual tailshaft into the slip yoke/ rubber donut coupling/ tailshaft, it doesn’t seem line up correctly as circled red in the photo.

When rotating the tailshaft the gap between the donut and slip yoke opens up but closes flush correctly again towards the top as if something is warped. Tailshaft recently rebalanced. If I bolt up everything as is right now the donut is very warped.

Any clues what would cause this?
 

that's not a problem... just get one or two threads in each bolt and then tighten each bolt up around the circle evenly.

compare the offset of your original centre bearing to the new tailshaft ,there are 2 offsets available as well as spacers to lower the shaft even more. you want to get the frount of the tailshaft as straight as possible, or take it to a driveshaft specialist (like hardy spicer ) last thing you want is vibrations or premature wear of the coupling