Not using dust covers seems like a bad idea to me.
If you are saying you'd like to cut off the threads sticking past the castellated nut, I can't think of a reason not to, as long as there is enough metal left  around the cotter pin hole.
Just my $.02 though.

I totally agree that you need to have the dust caps properly installed on the hubs.

If you are talking about old style Magnum 500's in 14" or 15" steel version, the center caps should not prevent the cap from being installed.  Worst case, install the cap in the wheel, then the wheel on the car. 

That is, if you have the correct year Magnum 500 wheels.  Sounds like you have the 69-70 wheels which have the 2" hole in them.  When the brake hubs got larger (like your Granada hubs) they increased the wheel hole size to 2-1/8", and used a center cap that was taller and had different size clips in back.  (71-73 cap is 3/4" tall, 69-70 is 1/2" tall).  My 69 has two of each size, so it has to have different caps front and rear.  But, they look identical from the outside since the aftermarket was kind enough to make the early style 1/2" caps that also fit the larger holes.  I suppose you could drill the wheels out to the larger size, but it needs to be done correctly so when you have the wheels balanced, they center correctly.

Way back, many moons ago, when there were no reproduction Magnum wheels, it was easier to come by the large hole wheels than the small ones.  I had some adapters machined that pressd into the hole so the small hole type caps would fit. (No aftermarket replacements existed then).

Now, I did a similar thing for the 94-04 aluminum Bullitt and Magnum 500 style wheels in 17" size.  Those adapters let you use the 06 and newer caps that have a hollow back on them to clear the dust covers when bolted up to early Mustang hubs.  They fit all the alloy wheels from 94-2004.





 

Usually the end of the spindle is proud of the hub snout, so how much trimming can you do and still be able to safely install the castellated nut on the spindle to retain the hub? Can't trim the hub, or the outer bearing race will stick out.
Pics would be great.