3-handle tub and shower diverter problem

Problem: Water runs from the tub spout even after I turn the shower diverter handle as far as it will go. So, I removed the middle compression type diverter assembly and replaced the rubber washer under the end screw. I soaked the assembly in vinegar and scrubbed it with a toothbrush to remove the green and white build-up. I did not change the "hard yellowing" O-ring because the person at Home Depo told me I didn't need to (and it seems almost cemented on). Lastly, the middle stem piece will completely turn inside the locknut part when I hold the assembly in my hands. However, each time I put the complete assembly back into the wall, the diverter handle will only turn 3/4 of the way. Do I need to replace the entire diverter assembly to fix my problem? Please help!

The "hard yellow" washer is the problem. As is the rocket scientist at the store. The rubber stem washer keeps water out of the shower head in "tub" mode, and the nylon washer keeps water out of the tub in "shower" mode. The best thing is to replace the entire stem, although all the parts are available if you are willing to clean up the brass.

Make sure when reinstalling that stem to have it in the intermediate position, neither fully open or closed. If you are having difficulty installing it, it could be the "yellow" nylon washer mis-shapen or out of position. This is probably a good time to just get a complete new stem