So my Stevens 1894 locks up tight with the barrel removed but when i install the barrel the Lever will drop down about 1/4" when everything is tightened.  It's like the barrel pushes the breech block back, is that normal or a problem?

Interesting comment John; however I've had the guts(link and pins) out and they are a snug fit, no slop with the pins in the link. With further examination of the barrel I noticed that the hole, slot for the Take Down Screw has had more than one attempt to bore the opening and wonder if that might have a roll to play in the Lever dropping. thought I might fill the area with solder and then tighten the take down screw to get an idea of where the hole should be.  If that can be done then i'll have the spot Tig welded and re-drilled.  Will that work?

Would you think the deeper hole is the correct divot?

OK, lets get a few things straight here.

Headspace is controlled solely by the depth of the rim recess.

A Favorite cannot "lock up" at all without the barrel in place. 

Lock-up in Favorites and Model 44s requires contact of the breechblock with the barrel face before the lever is all the way home.  The final travel of the lever causes the link to cam over, and that final travel should be about 1/4" as measured where the lever meets the lower tang.  The breechblock is thus clamped against the barrel.

What I think I see there is that somebody inserted the barrel and jacked the retaining screw up tight without first opening the action.  Don't do that.  Open the action, slide the barrel all the way home, tighten the screw, then, and only then, close the action.  You should feel the link cam over as the lever closes that last 1/4 inch.  It will not droop.

Most of my 44’s and Favorites action will cam over and lock without a barrel in place. Only the well worn ones will not. 

In the 94 Favorite action the cam portion of the link presses against the hammer to tighten the falling block and hold it in place. The plunger and spring in the lever provide the tension.

With barrel removed and the hammer in the fired position there is spring tension holding the lever up and zero play or looseness in the lever. 
At half cock there is a little less tension, but the lever does not drool. 
At full cock a bit less tension but the lever still does not droop.

I agree that headspace is not the absolute correct term for the space between the block and barrel, but since the depth of the relief cut for the rim in the barrel is determined by the fit of the block against the breech end of the barrel, and the fit of the breech in the action, it is relative. It should be a slight interference fit for a Stevens, but that is not always the case. Consider a Maynard.

The whole assembly is pretty weak. Without the barrel installed, you can possibly push the block back and see if the lever droops. Maybe carefully apply pressure with a screw driver levering between the block and action where the barrel comes through.

If the barrel tenon is too long, you will not get the cam over feeling. It will just feel like you are forcing it shut, because you are. 

Too short of tenon should feel like the barrel is removed.

It is probably safe to shoot. May not be wise. Depends on why the lever droops and if the block will be held tight to the barrel. No fun to have a rimfire blowing out at the rim do to what amount to be a headspace problem.

Here is a nice tight action with good pins, lever, link and hammer. With a good lever plunger and spring. Held as vertical as possible to see lever to tang clearances.

Then a worn out rifle without a lever plunger and spring installed at fired, half cock, full cock positions. 
Note that the hammer pressure alone will hold the action closed.
At half cock it is supported by the link against the hammer. This is where the link lifts the hammer off the firing pin so it does not drag on the case head.

At full cock, with nothing to support the lever and block, it just falls open.

Continued.

Not knowing if someone has since head-spaced it off the back of a case or if it is only putting pressure on the back of the tenon itself. Makes it abit hard to give one an honest opinion if not having it on hand to figure out what might actually be the issue on hand?

Capt45 wrote on Nov 6^th, 2021 at 4:01pm:

Yes.  The other is metal displaced by someone tightening the screw when the barrel is not all the way home in the receiver. And possibly shooting it that way.

Can you see any daylight between the barrel shoulder and the receiver face when the rifle is assembled?  Should be none.  The taper cone on the screw engages the edge of the dimple and pulls it in tight.  (The screw and the dimple are NOT coaxial if the parts were made correctly. The dimple is offset .010-.020 closer to the barrel shoulder.  This offset allows for takeup of wear.)   

Once the barrel screw/dimple relationship is correct, the breech face of the barrel must interfere with closing the breechblock by about .002 (+.002 -.000).  Thus, elastic deformation of the linkage provides the necessary clamping force when the lever is closed.   

If the lever droops, there is no clamping force at all. Either the face of the barrel is not far enough back, or the linkage is loose.  (The face of the breechblock should NOT clamp the rim of the cartridge.) The gun will fire in this condition, but headspace is excessive, and the gun will "shoot loose" faster and faster.

I won't rule out your problem being a barrel mismatched to the receiver, but it would be a first in my experience.