As Tomkat has said - smooth the burrs off and spread the load.
The other question is why was the spacer spinning. Without further information I can't figure out the cause but, as the damage is on the outer face, I assume that the axle was not done up tightly enough leaving free play - that would also mean that the wheel alignment could create an interesting ride.
If you are stripping it down have you thought about going the next step and changing the swingarm out for a secondhand one - that way you can be sure of the condition of the bearings, lubrication etc because you have rebuilt it yourself.
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You will have to do without pocket handkerchiefs, and a great many other things, before we reach our journey's end, Bilbo Baggins. You were born to the rolling hills and little rivers of the Shire, but home is now behind you. The world is ahead.
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