If the problem is simple mechanical (the arm lacks enough down stroke to properly track the disc), then try playing with 2 discs on.
If it works OK that way, then the question is why is its vertical travel too limited.
I doubt the IR diode or counter is the problem or it wouldn't find the start of the disc.
Alternately you could make an "L" shaped tool of a paperclip; initiate play and when the tonearm drops, pick it up a little; if you hold steady in place, it will remain there, but if you move it in the direction of play, the tonearm base will move over to follow the tonearm and stay 90* to its track.
-OR- it has nearly 0g tracking force and is balanced at the record surface. You can remove the platter and run it with no platter; because it's black there, it will drop the arm. Set arm to 0g. If the arm is balanced, it will lower to approximately where the record would be and hover there; if the arm is deflected inwards, the servo will try to correct for this and the arm will move in til it reaches the reset point and returns/shuts down.
If the arm is out of balance, you need to remove the plastic cover that snaps onto the carriage around the arm's end. In the middle of the counterweight assy is a small recessed screw; loosen that and balance the arm (while it is in the play/lowered mode) by moving the counterweight in or out in tiny increments. This may drive you crazy. A "cheat" would be that if the arm is too light @0g, try moving the tracking weight adjustment out. If a few tenths of a gram balances it, then just add the tracking weight to that until you're ready to finesse things. (ie: if you need .6g to balance, and cartridge requires 1.0g, then set it to 1.6g; it will be fine.) Good luck!