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Looks like the ball joint boot is trapped and will allow dirt etc in. You could use a small screwdriver of pick to lift the top of the boot back on. Won't help with your clearance issue but will help your ball joint live longer!
It doesn't appear that you need a lot more clearance, short of anything else I think a little grinding would take care of your problem, but before that I would definitely get a good measurement on your camber (+1 on what Ken just posted while I was typing this) kip
 
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