Ken -

The diodes go in series in the same spot shown as the zener diode. I'll draw out something... but you have to understand that schematics are not layout diagrams. You could lay out a handful of components tens or hundreds of different ways and it be the same electrically.

Also this would be a better choice for insulator, it's actually the right size for the 317 - http://uk.farnell.com/jsp/search/pro...note-520214-pr