The spacing on the labels is controlled by whatever spacing your Word installation applies to the Style upon which their content is based. Instead of overriding that with direct formatting, you should update the relevant Style definition. I note that the default for those labels uses the Normal Style with 0 before/after spacing - so maybe some changed either the Style or its spacing, or applied some other direct formatting.

It's not clear what you mean by "the label registration drifts". Check the table row properties - they should all be set to 3.81cm (1.5in) 'Exactly'. If they are and the output's vertical position progressively moves up/down the label, you may have a faulty printer feed mechanism or a faulty/incorrect printer driver. To eliminate the latter as a potential problem, go to the maker's website and download & install the latest driver for your printer.

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Cheers,
Paul Edstein
[Fmr MS MVP - Word]