It looks like the James gaskets that come in the top end kit I ordered come with standard type head gaskets. The kit does not have MLS gaskets. There may be a different part number for a kit with MLS head gaskets. It is pretty clear that the head gaskets that I have are the older type, the openings on the head gaskets around the line up dowels are way too big. I did find some old/spare o-rings in the pile of unused gaskets that fit around the line up dowels and then the head gasket fits perfectly.
This would have been much easier IF the James gasket specified this. The manual I have for the buell is a 2009 XB12 service manual and it clearly shows NO o-rings.
The gasket clearly failed because of improper installation, without the o-rings. I assumed the service manual was correct. In future I will order MLS head gaskets. I have found similar issues in Sportster and Buell forums. Using the o-ring when you shouldn't and not using the o-ring when you should.
The thing that really sucks is; I changed the top end gaskets on my 2001 X1 with the James Gasket top end kit. (there is two kits, depending on the year of your bike) and for the life of me, I don't know if I installed the o-rings.
I don't ride the X1 very much, so it hasn't failed. I may need to re-do the head gaskets on it in the near future.
Live and Learn!!!