You can see a server I bought in 09 and the one I bought in 2011 here. The 2011 server stops "hard" at that point (hitting the stop points on the back of the rail where it should).. but pokes out a ton.
I racked one 2U 825TQ not long ago in APC cabinet with square holes, didn't find any problem with it. Was pretty easy.
Did the ears on the server sit flush with the rack verticals? Mine wont go that far in, even testing the rails off the rack. You can see in my original post where the server pokes out 1/2" or so from the rack verticals. It's more cosmetic than a functional issue, but dang that's a big change from the rails before.