Headset rattle

also tyan, amazing pic, u have to much time on ur hands,

Indeed I have !

i reckon i need more spacers, the gap is about 1 mm.
but the cap also sticks on about 1mm,
therefore it is clearly resting on steerer
thankyou all for ur help :)

Yeah, that sounds like your problem, if the bottom of the cap is touching the top of the steerer then there is no space for them to move towards each other and therefore you cannot tighten anything.

So . . .

You need to do one of the following:

1) buy another thin spacer (2 or 3 mm) and place it with your other spacers under the stem.
2) buy another thin spacer (2 or 3 mm) and place it above the stem and under the top cap.
3) file or sand a couple of mm off the top of your steerer tube.

Don't make the space between the top of the steerer and the top cap any bigger than 2 or 3 mm as the style of stem you have (specifically the steerer clamp) needs enough steerer at the top to clamp to.