Yeah, that's what I figured (vertical misalignment). The issue I had with was that when you mortise into the EDGE you have to have right face up.... even if you set the fence-height to be half the width of the work piece, it could still be off by a bit. If you have the fence height set to something other than work-piece height / 2, you will still get a flush joint if you mortise with the correct face up (assuming of course the fence never changes). The correct face to have facing up when you do the edge should be the one on the OUTSIDE of joint. So if the top/bottom butts into the sides, then you'd want the top of the top piece facing up when you mortise it's edges, and the bottom of the bottom piece facing up when you mortise it's edges. You put the 90-degress fence (with the big handle) on this up-facing face. That's the big secret that I don't think I saw in either the manual or the supplemental manual. If you have the wrong face up (the inside face) the mortises in the edge will be off center in the wrong-direction relative to the other workpiece.
One way you can be sure to get it right is to put the two pieces the way you want them before you mortise, then mark with a pencil across the joint as if you were making a mark to use to position the dominoes. If you can see the mark through the window on the fence when you make your mortise then you have the fence resting on the correct face of the workpiece.
Note again, this is for using the domino the way I have it in the pic I posted - with the fence at 90 degrees. I keep the tool in that setup both for the face mortise (as in the picture), and for the edge mortise (when the tool is "floating in mid-air").
Cheers,
C