how long have you been running that setup? If it's been awhile, and you haven't rubbed, then you should be fine. Also, the 1/8" gap between tire and balljoint should remain about the same during the suspension's normal range of motion, I think...The balljoint is "fixed" to the spindle, as is the the wheel/tire assy, so they are moving as one unit. Doesn't look good, and it's probably not ideal, but I'm guessing that you'll be fine.
I have VERY little clearance between my UCAs/upper balljoint and the lip of my 17" rim, but other than some rubbing on full lock, which I have almost eliminated, it has been fine so far.