OK first: Tension
I will post an expanded version of this on my blog in the net day or so, but here's the quick and dirty:
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This is where the spring should be sitting.
Currently, if you were to push that spring off the thread catch at 10 -11 o'clock and past the ledge at 9'oclock and past that pesky screw that sticks out... I don't think your spring would drop to about this position:
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This is where it should sit before final assembly when you push it up to that ledge at 9'oclock. That spring being up as high as it is will cause really weird tension issues, and -could- cause skipped stitches.
Also, a good rule of thumb for the setting of the tension: As a baseline, most of my machines have the knurled knob flush with the post at about 3. If yours isn't, push the numbered dial in, and turn the knurled knob left or right until it's about there. This should give you a ballpark starting point.
Do this after you set the takeup spring correctly.
K, now timing
At the point you show in your photo, the needle will be at its lowest position, or very very close to it.
This is where the hook will be:
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As you turn the handwheel toward you, the needle will start to rise from here, roughly 3/32" and coincidentally
will bring that second line on the needlebar into place beside the indicator. At the same time, the tip of the hook will be pointing to the center of the needle, and the eye of the needle will be about 1/64" below the hook.
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Here's what it looks like with the bobbin retainer removed. Red Arrow - Hook Tip, Blue Arrow - Eye of the needle. The hook tip did move a tiny bit when I removed the retainer, it should be a tiny smidge to the left in line with the middle of the needle, like in the photo above:
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There's also a video uploading and processing that will be here eventually, if you feel like listening to me babble
(more) about it:
http://www.youtube.com/watch?v=lT98wbDLVco