John Healy over on the Britbike forum replied to a similar thread to what I have here, regarding these stinkin' o-rings. He says it is possible to get them installed properly and that the factory tool is useless. Here's a link to that thread to maintain continuity.
I'm probably going to try John's method.
Cyber - note that in John's reply, he says "tap" not pull in with the nut. John's a recognized expert on these bikes so if there were a better way, I think he'd be using it. Not trying to be right here, just trying to avoid problems for others.
My understanding is the cap is a press fit onto the spindle. A press fit is normally a pretty robust way of attaching something that is not in tension. I had to re-machine my caps because of a ham fisted mechanic using a metal hammer on them at some point and I the time, I thought they were one piece. It wasn't until I started to research the o-ring installation that I learned they were separate pieces.