9 degrees before top dead center. 9 more degrees of rotation and you will be straight up and your #1 piston will be all the up. The ½ way up as you described doesn’t sound right to me, ½ way up is 90 degrees or the 9 o’clock position.
Usually people set the motor to TDC for this kind of stuff, but setting it at the timing mark is good too. I'm guessing 9 degrees is the oem ign timing? What’s really important is you put the cam and distributor in the right spot after it’s all over. A digital pix of cam sprocket and head while at TDC is a great idea for reference, sometimes it’s hard to remember exactly how it was, especially after a mill job.
As far as sealant goes, if the doesn't say to then it's probably fine, but someone with more experience may suggest a dab here or there. I always use at least some in and around the holes in the head gasket that water is in contact with, basically making the gasket waterproof at that spot. The closest I’ve come to your motor is a head gasket change on an ’85 190E 2.3L 8V.

I remember tightening the head bolts on my car was scary to say the least, I thought for sure the instructions were wrong. Good luck with it.