Personally I'd wire it with 2 wires and not use the frame as an earth as it'll work better and be more reliable. Speaker wire is a neat solution for this and cheaply available from any hi-fi or car accessory shop.
Take a straight edge and hold it parallel to the axle of the dynamo (running through the roller straight down the dynamo body) and see if it bisects the axle on the wheel. If not, adjust until it does. The tail lamp bracket can be bent to point in the right direction afterwards.
You only need just enough pressure against the tyre to drive the thing, any more will increase drag, noise and tyre wear. if you have a ~3/8" gap when the dynamo is off, it should probably be okay.
SJS cycles will have rubber caps which fit most bottle dynamos and it will run quieter and be less likely to slip in the rain with one of those fitted but it isn't strictly necessary.