A one inch squat is normal. You will rarely if ever see a TV that's towing a trailer that isn't squat in back. Mine drops the back of my Sierra about 1 1/4 inches with the WD hitch. The height of the back end is to accommodate this squatting. The shackles essentially circumvent the purpose of the stock height. But if your not having issues, I'd try it like that for a while.
What's important is the front. Before hooking up, measure your front fender lip from the ground. GM says in the manual that with the trailer on, the front height should be the same as as without. If you are up in the front you're taking weight off the tires and compromising control. That's what the WD hitch fixes.
The 600lb tongue rating is probably a dead weigh measure. There is also a WD hitch rating, which on my '08 is I think is 1100#. It might be a little lower on yours as its an older model.
I think your trailer has a 3500# GVWR. Tongue weight will be 10% - 15%. For arguments sake I always figure 13%. That makes your tongue weight 455# assuming that you have the trailer loaded to its max. You can use a bathroom scale to measure your tongue weight, and if you don't have one that goes that high you can use two scales with a 2.4 across them to split the difference.
Hope that helps.
2013 Jayco Jayfeather X20 E, 2008 GMC Sierra 1500 Crew Cab Z71 SLE