DTL-1SB First build

[McCreed]

1. I removed the plastic nut and the new bone upgrade on test fit is quite loose in comparison (see pic there is a gap between fretboard and nut) - is this a problem and can it be addressed or is the nut wrong?

Not an uncommon issue. Fretboard nut slots and nuts can vary. Especially with kit stuff as a lot of it is done by hand (not CNC).

First, I would make sure the slot is correctly perpendicular to the fret board. I can't tell if the nut is crooked in the slot or if the slot is crooked.
I would also re-check the measurement from the middle of the 12th fret to the fretboard edge of the slot (or the nut). The nut can be shimmed, typically on the tuner side, but can be shimmed on the fretboard side if the 12th fret distance is short. Hopefully that makes sense.
(If the 12th fret distance is good, just shim on the tuner side.)

I use wood veneer for this kind of shim. You will likely need to thin down the veneer by sanding or scraping to get it to the right thickness. It (the nut) doesn't need to be super super tight, just snug enough that the nut isn't sloppy. The nut will be glued in later anyway.
I keep a range of different wood veneer types on hand so I can match the fretboard colour as much as possible. I've used pine for maple fretboards before and that blends pretty well. Maple veneer would be an obvious choice, but the cabinet maker I get my veneer from didn't have any.

2. When I sand I will avoid the binding - what about when the tru oil goes on - can I simply wipe it off the black binding before it dries?

Most people (myself included) just Tru Oil over the binding. Since you have black binding, there's little to worry about with the amber tint of the Tru Oil affecting the binding colour.
If you don't want finish over the binding, simply mask it first and scrape off any that seeps under it later.

[Simon Barden]

You can of course ask for a replacement bone nut that fits. If Pit Bull sell it as a replacement for the kit nut, they should make sure that it's wide enough. Over-wide is OK as you can sand it down, but too thin simply isn't right. Or get a refund and buy a bone nut from the web. You do have to check for the thickness but you can normally find them in different widths, heights and thicknesses, so I'd measure your original kit nut with some digital callipers and send Pit Bull the dimensions.

I know you can, but you shouldn't have to shim behind the nut.