You might report how far the pushrod is sticking out of the end of the shaft?  IIRC there's normally very little to no gap under the head of the pushrod and the end of the shaft
 

I would start by pulling the clutch cover and then observing the clutch pack's movement as you work the lever. At least this will confirm it's NOT the cover
-- Ray

"You might report how far the pushrod is sticking out of the end of the shaft?  IIRC there's normally very little to no gap under the head of the pushrod and the end of the shaft"
 Mark - not following.  The actuator side?

Ray - clutch operation has been viewed with side cover off and works beautifully.  This is why I'm focused on the cover being the culprit..  When it goes back on, the clutch movement binds.

Nonetheless, I will be reviewing everything that's been mentioned to eliminate all other possibilities. 

The pushrod in the shaft right under the spring-loaded clutch pressure plate. Looks like about a nickel size plate on the end of a rod. When you pull the lever it pushes against the pressure plate.

I'm not up to date so will read later. But on a 360 if you use a narrower 250 cover the pressure plate will run into it--by memory.
Conversely, if you use the wider 360 clutch assembly on a 250 it will hit the 250 cover on actuating--by memory.
Lots of 'by memories' sorry but i've been through all that building parts motors from boxes of assorted motors mix n matching.
So if your motor has never run & was built from assorted parts--is it a possibility.
Or are you sorted now & i'm way behind haha.

It won't be because of a thin aftermarket side cover gasket. I had one on my 68 and the clutch worked fine and didn't touch the cover with it. However I ended up replacing it with a NOS yamaha gasket because the thin aftermarket gasket leaked a bit after sitting a couple of weeks. The NOS Yamaha gasket was much thicker and more important (wider) so it covered the complete gasket area of the engine case and side cover. 

I don't think it has anything to do with your clutch plates either or how you have them stack because you said when you pull the clutch lever is when the preasure plate hits the side cover? You can not pull the clutch lever all the way to the hand grip?

I would check the push crown under the preasure plate like Mark mention to make sure it's not sticking out to far from the clutch boss. Then be sure it's the correct one and check the push rod length/ball and the free play adjustment on the push lever assembly on the chain side cover. 

You can use a thin layer of grease on the outer side of the preasure plate and center, then install side cover and pull the clutch lever in and see where the grease is on the inside of the side cover if its hitting it.  

Here is a close up of the clutch. I think this picture is before taking it apart because the clutch plates look like the old stock plates. Again i don't think your plates are the issue since you said it only hits when you are releasing preasure on the clutch plates as you are pulling in the clutch lever.

You really need to confirm if and where the clutch preasure plate is hitting the side cover if that's actually happening. 

Just my thought now i've written the other post & changed computers to an efficient one.
The first plate in looks like it could go a lot further back, so whats stopping it.
Didn't DT1 have a strange setup using a thick unsplined spacer plate at the back between two normal steels & use one less fiber.
So if an aftermarket set of fibers are fitted maybe with an extra plate & sets it further out?? how do we end up??.
Think back in "68-ish i used to add a fiber where the spacer is & hang that on the wall.
Of course then the pressure plate will move over because the fiber will be thinner than that fat unsplined spacer steel & achieve or fix your distance when actuated.
But bottom line is so long as the pressure plate doesn't bottom on the center before doing it compressing job.

Ok it still shows 6 plates on fartzilla so i'm wrong but was a thought anyway so look in that area. I had the exact problem on my 360 using a 250 cover. All set to go & bugger me couldn't pull the clutch in. But thats getting off track.
www.partzilla.com/catalog/yamaha/motorcycle/1968/dt1/clutch

Good morning, all
I did some further investigating last night on this interference issue.  Using my list of items to look over, here’s what I’ve found.  Rod with “mushroom head” that pushes the pressure plate sits all the way down with a “clink” as it should.  If it weren’t, I’d think that in turn the pressure plate wouldn’t be able to sit properly as it is.  Here’s what I did last night….

• find & review service manual – done and good to have, but didn’t tell me anything I didn’t already know.
• measure all remaining discs, plates, & cushions – All pieces verified and measure as they should.
• check actuator adjustment – adjustment was perfect.  Screw turned in till contact with rod then backed off ¼ turn and locked down.  Basic stuff
• reassemble according to manual / parts diagram – done but manual not needed
• match reassembly to new skydancer46 photo (if possible) – wasn't necessary, but thank you
• add wet paint (or any better suggested marking material) to pressure plate, put cover on along with gasket and hope that clutch activation leaves a mark- Succes!  Sort of.  The exercise confirmed that the pressure plate center is contacting the small nub on the inside of the cover!  See pic.

Now, where to go from here?  I’ve got the problem area specifically isolated.  Now to find the cause.  Given all that I’ve done, the only two items remaining (that I can think off) are to extract the actuator side push rod, measure it, and to compare to the specified length -which isn’t in the service manual.  If someone can post that, I’d appreciate it.  However, consider this…. for discussion purposes, lets say the rod is found to be 2mm too long.  Why would it matter when the extent of the movement of the rod is completely controlled by the ability of the actuator to advance it?  If the actuator is designed so that it’s maximum limit to push the rod is 4mm of movement, then regardless of the length of the rod, it’s only going to move 4mm.  And if the adjustment at the actuator is set correctly (screw backed out ¼ turn  from contact) any extra length would be nullified.  Am I wrong?  Nonetheless, I will measure it and compare it and post the length here.  I am truly suspecting that the side case has somehow gotten deformed ever so slightly.  I sure can’t see it.  But, logic tells me that if I grind that nub down a couple of mm’s the problem will likely be solved. Thoughts?

ADDITIONAL: I can't post the pics!!!!