Scope can't mount correctly on side mount due to contacting the rear sight block.
Rifle is a WASR 10/63 http://i.imgur.com/qX43xZe.jpg
http://i.imgur.com/gLNZqxW.jpg

However you can see if I flip the leaf post up, it will mount (barely) with contact still occurring between scope tube and rear sight block.

http://i.imgur.com/CDqizZs.jpg
http://i.imgur.com/XZ4hGSr.jpg

I can think of some reasons why this would be happening, but I would like some others input.

Is there anything I'm looking over that could fix this for me? Or should I just be looking for a new POSP?

rifles side mount too low?
Optic Side mount doesn't bring the tube high enough?
Incompatible scope (could there be "SVD" specific type scopes that dont work with this model AK?)

That scope you have has an svd type mount. The svd style mount places the scope a bit further back and lower than the AK style. While some ak's have side rails that will take an svd mount, unfortunately as you have found out a POSP with the larger 42mm objective lens doesn't clear the sight block w/the svd mount.

this explains the mounts...
http://russianoptics.net/Concepts.html

I prefer the 4x POSP for an AK personally, but if you like the greater
magnification of your current scope you can get the AK mount from Kalinka that will sit the scope a bit higher so it clears the sight block.
http://kalinkaoptics.com/mounts/posp-ak-bottom-mount-w-black-finish-for-posp-scopes-hot-swappable-42.html

Awesome, thanks man. Gonna order the conversion.