Hmmm...I'm wondering if you got a bum nozzle. I just so happened to use my red one a couple of nights ago. Interestingly enough, there is the tiniest bit of flash right at the nozzle opening. Fortunately, it doesn't seem to have any detrimental effect on the performance.
Is it the nozzle that came with the set or is this something you recently purchased individually? If it came with the set, I'd probably contact Testors to let them know. They might send you a replacement. They were extremely good at replacing my Aztek airbrush when a component on the inside broke. If the nozzle is something you purchased individually not too long ago, I'd probably take it back to the store to see if they could swap it out for a new one.
You're right about the gap. There should be the smallest of gap between the nozzle and the airbrush body. I know if you overtighten the nozzles, it'll keep them from working properly. I found that out a few years ago. I think I was getting air through the brush but no paint. When I loosened the nozzle just a tiny bit, it worked fine. I never use that tightener tool they give you in the kit. I just put the nozzles on snuggly with my fingers.
I hope that helps and that you're able to get the issue resolved quickly. I enjoy using the red nozzle. It covers nicely. That and the black one are my favorites and the ones I use the most.
Best wishes,
Eric