That is a common area for leaks on the FE, especially if you can't get the distributor centered in the hole on installation. I have often filled the gap with gray silicone RTV after the engine was timed and the distributor was in its final position. Surprisingly with normal RTV (not the Right Stuff) you can still twist the distributor a few degrees to adjust the timing somewhat without breaking the seal formed by the RTV. The sleeve mentioned in drdano's post is really a better solution, but if you build one of those make sure you design it so it doesn't interfere with the distributor hold down clamp. I preferred the RTV solution whenever I was running a vacuum pump on the engine, because even with a sleeve you would still see some vacuum leaks at the distributor hole, and the RTV took care of that issue.