I tried these Dia-Compe brakes and found the same thing happening. There's no room for the squishy bit - the boot, so I left it out.
It may be the design of the Dia-Compe though admittedly they look pretty similiar. The Tektro versions just seemed to fit better. Note there is just enough room on the Tektros for the boot to fit in. Braking was a bit of a puzzle with this bike and took a bit of work to get it right.
Can you slide the blocks down more and level them out - there looks to be a bit more room. Then you can slacken off the cable a bit. You then will have to deal with all the cable slack. That's what the Travel Agent is for. MacB, any thoughts?
I have fitted Tektro Oryx brakes to the front as the mini-vs wouldn't give enough clearance for the mudguard bridge. Fitting Cantis led to a
bit of an issue too, due to the forward position of the gear cable bosses. Anyway, it all works well enough now.