It is possible that the Clip is too big in thickness. Are you sure it isnt bent?
I had a problem getting it pulled out far enough once. In the end, (if memory serves me right) I used a bolt screwed into the end of the axle and then a claw hammer against the hub flange to pry it out like you would to pull a nail. Perhaps you can try that? The clip should definitely seat well in the groove.
As I mentioned above, there are about 6 different sizes. They are pretty inexpensive and a good idea to keep a couple of each size in your kit of parts.
I had a problem getting it pulled out far enough once. In the end, (if memory serves me right) I used a bolt screwed into the end of the axle and then a claw hammer against the hub flange to pry it out like you would to pull a nail. Perhaps you can try that? The clip should definitely seat well in the groove.
As I mentioned above, there are about 6 different sizes. They are pretty inexpensive and a good idea to keep a couple of each size in your kit of parts.