Position 1. Looks like it's all a bit further down than it should be, although not a huge deal. Are there any other rudder stops that would prevent the quadrant from turning too far? Because it looks like what you described as "rubbing" is actually the rudder stops, just the quadrant may be a bit too far down as well. And I'd put some rubber pads on there if it was my boat, to prevent future wear and have gentler stops when the rudder goes hard over.
The rudder top nut can be adjusted by loosening the Philips screw that pinches it, which is how it locks, and then tightened up (easiest if someone is lifting the rudder from below whilst you're out of the water anyways). Then tighten the locking screw again. Mine needed some blue Loctite to stay tight. Make sure the rudder still clears the hull at both extremes and the quadrant is at the right height (end stops working and steering cables running straight).