Quoted: No, it should be able to go higher then that mine do. And there should no contact between the knobs.
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Can you post a photo of your detachable handle with the housing bottomed out, then raised all the way up? Somehow I think you may have confused a standard A-2 upper receiver's amount that you can raise the rear sight, verses the amount that you can raise a detachable carry handles rear sight.
If you take a look at this photo, you will see that the sight housing threaded section only has the amount of room from the bottom of the roll pin, to the bottom of the detachable handle flat (minus the amount of the retaining end slot in the threaded section) to be able to rise. In order for the sight housing to be raised higher, the housings threaded section would need to protrude below the base of the detachable handle, and since the A-3 upper receiver is not mill out for such, the handle would not fit on the upper with the housing threaded all the way down.