This issue had me racing down to the basement to survey my fleet. While reading the post, I was thinking, I've seen many bikes with the slot going into the seat tube. My survey revealed a mix. While I think it's both asthetically and structurally superior to have it end in the lug, I don't see a real problem if it goes into the tube below it, provided it not TOO far, and you do drill or round out the bottom to eliminate the stress riser. After all, your putting this big thick piece of aluminum in there to strengthen the area.
Mark Hoffman
Relaxed in balmy
New Britain, CT
USA