.23mm is impossible, the engine would not even come close to starting and running at that kind of timing value. Anything under about .50 and you'll have a great deal of trouble starting it even on a warm day at sea level; in colder weather or at altitude, forget it.
Your measurement must be incorrect somehow. Either there must be something not right with how you have zeroed the dial, or as 745TG said you may not have enough preload -- or maybe the way you are rotating the motor is not allowing the pump piston to reach the appropriate point in its stroke. Or feasibly it is possible also is that the pump is overly *advanced* and what you are actually reading is a correct value of not 0.23 but *1.23*, under which circumstances the engine would run fairly normally (though you would not want to leave it that way for the long term). Either way you need to know.
After reading your post I suspect you read a section in the greenbook that entails adjusting, not checking, timing. The greenbook is great but can be confusing since it offers about 5 different possible procedures for dealing with IP timing, depending on which engine job it's being described in the context of, so it's easy to run across an IP timing procedure that the greenbook is recommending for one kind of situation but that's not the most straightforward method for what you may be doing. A simple check of timing doesn't involve moving the IP case to align the marks on the bracket, etc -- all you do is put the dial indicator in, put cold start lever in warm position, and turn the engine over by hand read the current timing position.
Timing is tricky on these motors until you get the hang of it so let's start again from the beginning. Without altering any engine settings, the dial indicator holder is installed in the pump, the rod is attached to the dial, the dial and rod are inserted into the holder, and pushed in far enough to have *at least* 2mm of preload reading on the dial. I see that your dial reads from 0-8mm, so you have more than enough range; the full stroke of the IP plunger is on the order of ~2mm so with your gauge I would set maybe 4mm of preload just to make things easy. You make sure the cold start advance lever is in the disengaged (warm) position. At this point you are equipped to measure the stroke of the hi-pressure piston in the pump, which is how you'll determine static pump timing.
Now you start to turn the engine over by hand, rotating *clockwise* if viewing the crankshaft from the front (your ratchet is set in the "tighten" direction with a 27mm socket on the front of the crank). This means the IP is rotating *counterclockwise* if your perspective is the drive sprocket end of the IP (i.e. the rear of the engine), but *clockwise* if you are looking at it from the end into which the dial indicator is inserted. OK, so you're spinning the engine over, in the direction of engine rotation, but for now you are ignoring all the TDC marks, you're just spinning the crank and watching the dial indicator. The needle is rising and falling by somewhere around 2mm, six times for every two complete rotations of the crankshaft. You'll notice a high point the needle climbs to each, and also a low point where it returns and rests for several degrees of crank rotation before climbing again. This is the "zero" point for your dial indicator -- you'll rotate the face of the dial so that the needle is reading zero each time it returns to that lowest point, and climbing by roughly 2mm from that low point on each pump stroke.
Now is the time when, if there is some kind of problem with the preload you have chosen or the operation of your tool, you'll find out about it. If you're seeing a much lower number for piston displacement than ~2mm, or your zero point is erratic, then you know you have an issue that needs to be corrected before you can get a real final reading. But assuming everything up to this point is working as described, continue:
OK, you have been turning the engine over and got the dial indicator dialed in and everything is rising and falling satisfactorily to a reliable zero point -- now is the time when you'll finally start paying attention to the TDC marks. Look on the outer edge of the IP sprocket and you'll see it has a notch in it in one location. When that notch lines up with the corresponding notch in the upper outer ear of the IP's mounting flange (pictured in the photo you attached earlier), that indicates the pump is on #1 injection stroke. Note that the mark you care about is the one on the IP flange ear, *not* the one on the IP mounting bracket -- if these are lined up then they're one and the same, but if they are not aligned (as they are not in your picture), that's no big deal as far as timing is concerned, but keep in mind that the one on the *pump* is the one that matters and you will be paying attention to.
Rotate the engine, *only* in the direction of rotation (i.e. clockwise at the front of the crank), until that notch on the IP sprocket has traveled around and is beginning to approach the notch on the IP flange ear. Watch the dial indicator, which has been rising and falling. As the IP sprocket slowly comes around and gets closer to the notch, you'll see the needle fall one last time to your zero mark, and then start to rise again. Now, turn the crank as slowly as possible and watch the flywheel thru the window in the bellhousing. Keep turning slowly until you see the "0" mark on the flywheel align with the pointer in the bellhousing. Take the wrench carefully off the front of the crank. Check that the notch on the outer edge of the IP sprocket is roughly lined up with the notch on the outer ear of the pump mounting flange. If so, you're done. Now look at the dial indicator. The reading you see showing there is your timing value.
If your engine was starting and running to any degree at all, this reading will likely be at least about .70 and at most about 1.00 (aka zero). If it's way outside that range, you need to know if it's too low, or too high, since if the reading is above 0.99mm you will not know from the dial's final position if it's already gone around once or not. As you are doing the final stage of the above process, working the crank up to #1 TDC, keep an eye on the dial indicator and see what it's doing. If it wraps all the way around past 1mm before you reach TDC, you know your reading is high; if it rises only straight from the resting zero point and doesn't complete a full rotation by the time you have reached TDC you know the reading is low.
Long-form version, sorry, hope that helps and makes enough sense without pictures... One last thing, if you overshoot the marks while trying to come up to TDC, you can have success backing way far off in the reverse direction of rotation and coming up at it again, but often easier to just go all the way around again in the clockwise direction to ensure no possibility of error.
Let us know what you find.
I will be traveling to Denver in about 3 weeks so if all else fails we can link up and give it a try then...