Yes, the PTO shifter shaft should be turned so the pin that runs in the PTO clutch slot is down.
I don't think the pin would be in the slot any if it was facing up, but I never tried putting one together that way.
Below is a listing for a new one at TM Tractor, it goes in like the upper pics in the listing show.
http://www.tmtractor.com/new/pt/317fp.htm
