Headset - do I need this part?

hello chaps,
I've been a lurker for a while and have learned a fair bit (i'm building my first fixie with very little knowledge), but now I have a questions so it's time to speak up and ask for your advice. please forgive my obvious lack of technical knowledge, I'm learning, slowly.
When I got my frame it came with a headset cable-tied to it. I've put it all together and the bottom bit looks like this:

it feels smooth, but is quite noisy. anyway, I've been given a new headset for Christmas (Token TK727CN) which is great but it doesn't sit flush with the top of my fork.
the bearings are sealed into the bit you can see balanced on my knee below, then the bit i'm holding goes between the fork and the other bit (which will be attached to the frame). my question is do I need to have the big washer-like-bit between the fork and the sealed bearing bit?

If I don't use this little part then the headset will sit better with the fork and look much nicer.
with bit:

without bit:

if I do need that little part (hopefully not) then does anyone have any ideas of how I can fill the gap between the top of the fork and the headset? your advice is much appreciated.
also, while I'm here, does anyone have any tips for removing the old cup racers (if that is in fact what they are called - the bits that are attached to the frame) without a specialist tool? I'm going to get my frame powdercoated and so will need to get these off.
Cheers,
Toby

http://www.parktool.com/repair/readhowto.asp?id=65

keep ALL the bits you have for the new headset.....there is a washer called a crown race from the old headset still on the forks, you have to remove that, then the new headset will fit properly.

1 you need all the bits.

2 depends on what your removing, it could either be a bearing cup (attached to the frame) or a crown race (attached to the fork). ill keep inmind that you don't want to buy new tools

bearing cup: first remove the front break, fork, and barrings (you have probably already done this). if you want to keep you cup, insert a cup removing tool in to the head tube until you cannot see the bottom (where it fans out) any more then give the top a tap with your hammer, or if you dont care too much about your cups place a screwdriver against the cup at an angel and give it a tap with a hammer.

crown race: place the forks in a vice, with the crown race just above the vice clamps, and the fork ends pointed towards the ground, then place a peice of wood on top of the steering tube, and give the wood a whack with a hammer. or come at the crown race with a hammer and screwdriver, with the steering tube on the ground hit down away from the fork blades.

That bit is the crown race, you definitely need it. I can't see from those photos, but it's probably not sitting well because the crown race from the previous headset is still on the forks. to get them off you need to tap it against a hard surface gently to loosen it. it should take a bit of effort to get them on as well.

Actually, it might be that you're just resting the crown race where it sits, you'll need to hammer it into place. Follow above instructions.

yeah you need to take the old lower crown race off (silver ring at base of steerer). if you are gentle you can reomve by tapping with hammer and screw driver, slowly around the edge, making sure to not stay in one spot. then replace with race from new headset.

D'oh. I said to the Mrs before I added that post that I thought I was probably missing something obvious. and I was. oh well, thanks for setting me back on track, makes perfect sense now.