It's good to keep the head cap strap as short as possible, but having it stick out an inch or so is certainly OK.
Actually, I use Sailworks sails, and for all of them that have an adjustable head cap (on a strap with buckles) I like to leave about 1/2-1.0" of mast showing at the top so I can be sure that the plastic headcap and strap is seated over the end of the mast correctly.
Where you might get into trouble is with a very small sail on a mast that's far too long, and also too stiff. You can easily rig the sail way down at the bottom of the mast so the sail and the mast are not as compatible.
It's best to keep the extension of the headcap to a minimum so the sail is on the softer and more responsive area of the mast.
Yes, you can add whatever you have extending out the top of the sail to the extension on the bottom if you are trying to rig "by the numbere" (I.E. North sails in particular).
This will keep your downhaul as close to what the designer had in mind as possilbe.
But remember, downhaul is perhaps the "most important" tuning parameter, so just because the sail/sail bag suggest a particular # of cm's does not mean you cannot put a little less downhaul on the rig for improved low end, or conversely, you can downhaul beyond the recommendations to loosen the top of your rig and flatten the lower panels to give you better overpowered stability and range.
It's all about tuning your rig for the conditions, and changing the "tune" as conditions change (within the sails range) or rigging a larger or smaller sail if conditions change beyond the tuning range of the sail you have rigged.
Hope this helps,