Here's the thing Clint , I experienced exactly the same thing a few weeks back . On filling the fork , the damper rod should be pumped at least 15 to 20 times to displace the air and fill the cartridge . You know when this is done coz you feel the damper rod "damp " fully during the up and the down stroke with no sudden give ! Then you walk away and kiss the mrs whilst the damper rod and oil settle . On returning from kissing the mrs, or having a beer depending on the mrs mood , you then measure the air gap which should be 89mm according to the specs ! Now then ! Why doesn't the 89mm correspond to 667cc ? After much head scratching , it occurred to me that the progressive springs displace more oil , around 100cc less oil per leg in fact to obtain the 89mm air gap with my hyperpro springs . On completion , I put a zip tie around the stantion against the oil seal cover and took the bike for a good old thrashing. . The zip ties indicated that I had been using all but around 1third or so of the available fork travel , thus leaving a bit extra for when the little lady is perched on pillion ! The handling is transformed and the fork seals still intact so happy days !

To answer the initial question though, air gap should always be measured with the fork fully compressed and the damper rod down !