Okay so maybe loose isn't right but I was able to push it in by hand.
Doesn't seem to move once assembled.
I guess the frame ( an original steel Inbred ) may have a slightly flared HT.
It's clearly not right but much to worry about?
Probably not, but worst case it'll wobble a bit and flare more. You could just Araldite it, or find something with a knurling tool to enlarge the cup slightly. I've got one in Glasgow, for example.
If it is flared you won't be able to tighten the headset properly. The frame is not beyond repair though. Crank Bros do a headset with extra long cups which work a treat (did with my steel cross bike that I bust the forks on after a crash)
My old FSA headset was like that and I used it for just under 2 years, as long as you can't wobble it at all, I'd just ride and keep tabs on it.
Several ways around this, 1st off figure out whether its the frame or the headset.
If the headset is new, its unlikey to be at fault. if its got alloy cups and has been used before, it may be out of shape.
if its the frame then, several options or a combo of each.
Face the head tube - take 1mm or so off might get you in to some tighter metal.
Loctite bearing fit, degrease squirt the bearing fit in and fit the cup. Halfords do a nice little blister pack.
Headsets, there are a few deep insert heatsets about, Crank bros direct sets, have stainless cups, which tend to come up tight and won't give like a alloy one.
It could get a lot worse if you just ride it.
TJ used loctite on his tandem IIRC. I doubt a knurl would achieve much.
It would increase the diameter, thereby making it a tighter fit. A better solution than glue, really.
But hey, I'm used to owning tools that most other bike shops don't see the need for 😉
knurling creates tiny raised edges (if you could actually get it to work on a headset cup).
I'd prefer glue given the stress a lower cup is under.
Sure it works on a cup - no problem at all. What's wrong with raised edges? It's nowhere near deep enough to weaken the cup. It's also not affecting the race area, which is the part under stress.
Everyone else - see what I mean about no-one in the bike trade being able to agree on anything? 😉
My thought was how would you grip it in a lathe, and would it have the meat to take the force of the knurl tool (or knurl tools I have used at least).
Raised edges - might wear down - the stress is all the way through the cup and into the frame, that's why it needs to fit well. Stress doesn't end at the bearing.
Ah, you need the Stein knurling tool:
[url= http://farm8.staticflickr.com/7181/6888585739_93ff172c97_z.jp g" target="_blank">
[url= http://www.flickr.com/photos/cycleologist/6888585739/ ]Stein tube knurling tool[/url] by [url= http://www.flickr.com/people/cycleologist/ ]Ben Cooper[/url], on Flickr
Much better for stuff like this - and for things that won't fit in a vice, like a pair of forks. It's one of those tools that is useless for six months, then it's worth it's weight in gold.
If you knurl it so it's a tight fit, then it won't move and wear down the knurling.
The permanent solution (I've done this also) is to gently tap the flaring back in against a steel tube, then braze on a reinforcing ring, then ream and face it again. Stops it ever happening in future, but it's a lot more work.
[img] 
[/img]
😛
[img] 
[/img]
What's the worst that can happen? 😉
[img] 
[/img]