A little confused, #1 on the cap is #1 for the rotor, what other #1 mark are you using?
"the rotor is pointing at #1 cyl" <<do you mean rotor is pointed at front passenger side of engine, that's not an indicator for timing
You should pull up distributor and spin the rotor where it needs to be and then lower distributor back down
You can make a mark on distributors case for #1 with cap on, then when you remove cap you have an easy way to line up rotor to #1
Distributor may not go all the way back down, use a socket on crank and turn crank 90deg one way and then 90deg the other way and distributor should drop down all the way, then rotate back to 0deg TDC, you were lining up the oil pump drive
Snug distributor back up, but not tight, so rotor and cap #1 line up
Start engine to warm it up for 4 minutes or so, then shut it off and install timing light and unplug SPOUT to set base timing
Use the pointer, never the "eye", to set 10-12deg BTDC
If your engine has the "eye" it was for a Ford tool used to set timing, so not used with hand held timing light
Just an FYI, I think there is a difference in the vane inside distributor, when it gets to #1, so TFI and computer know when #1 is firing
Not sure it "matters" too much for Batch Fire injection, but it would with sequential fuel injection
It is a good idea to have the cap #1 mark used for #1 spark plug just for the next poor bastard that has to work on the engine, lol
i.e. you probably could move spark plug wires to match rotor position like on a carb engine, but why not just do it the right way since its not that much trouble to do so