Steve,
Nothing can be more frustrating than trying to get a parting tool to cutoff properly when first learning how to do it.
I do not know your level of machining experience so I apologize in advance if I am insulting your intelligence.
Here's a drop dead simple trick I have always used for setting the height of my cutoff tools in a manual lathe.
Again, I do not know what lathe you're using but the principle still applies to most I would imagine.
The first thing you need to do is make sure your tool post is square to the chuck. I always held a 1-2-3 block against the face of the chuck and brought the tool post up against the end of the block. Be sure the tool post is loose enough to swivel without being overly sloppy. With the tool post brought to bear against the block, you should be able to hold the tool post there with your finger pinning the 1-2-3 block against the chuck and snug up the tool post nut. Bring the carriage away from the block and finish tightening the tool post.
Now put in a face off tool and with any piece of stock in the chuck, face to clean and be sure there is no tit left on the face. If so adjust the height of your facing tool and face again.
Once you have established your facing tool to be on center, turn the spindle off. With your face tool away from the face move the crossslide in so the tip is near the center of the piece, then with the carriage bring the tool tip in so it just touches the face. Again.....spindle off!
Now with the tool against the face, turn the crossslide out to drag a line across the face of the piece. It only needs to be about a quarter to three eighths of an inch.
Move the tool away from the face with the carriage, and replace the facing tool with the cutoff tool.
Now bring the cutoff tool with the carriage and cross slide so the tip is close enough to your drag line to compare the height. You should adjust it so it is either right on the center to just a tad below (not even the thickness of the drag line) and now you should be all set.
This might sound very complicated at first, but once you know the method, it can be done in less than a minute and with great results.
Also realize depending on the type of cutoff holder you have, you may need to do this everytime you change the length of the tool sticking out of the holder if it's at an angle.
On that note, also only have as much of the cutoff tool sticking out as you would need to part off the piece. Parting off a 1" Dia. piece? Stick the tool out no more .562". Keep your tool as rigid as possible!
Wait.....did I really just say that..............
Best Regards,
Russ