The group handle should go into place easily. I looked at a friend's machine recently which had a similar problem. It turned out that the group collar had lipped badly to the extent that it was jambing the sides of the portafilter when you tried to install it (similar to, but worse than, this).I find it quite hard to line up the portafilter handle. Often takes a few goes (seems to want to default to sitting at a 30 degree angle) until it is sitting flat and can be rotated into place.
He was able to carefully file the lips away so that it would fit again. In his case the lipping was only at the start of the ramps in the collar and his handle would only turn a little way before becoming tight. We pulled the seal out and found that there was a considerable build-up of scale under it like this one which has been scraped loose -
He packed the recess of his with paper towel soaked in vinegar to soften it before scraping it out. I just scraped this one with a broken piece of wooden chopstick then used a stainless steel scourer in it. Both sealed perfectly afterwards although the one in the photo above let the group handle turn past 90deg because of the collar wear.
It is possible that the collar lip was responsible for the chunk out of your seal but it would pay to check the rim of your group handle and basket for any roughness. The other possibility is that the seal had welded itself to the group handle after being left in place for too long.
Hope this helps