It is normal.. The sway bar is supposed to move up and down with the suspension. It's purpose is to resist differential suspension travel (one side articulating more than the other - which would cause the sway bar to twist). It is free to move up and down through the full range of suspension travel, as long as both sides are equal.
No, the washer is not on the wrong side. They're supposed to be right next to the bushings, acting as sort of a backer for the bushing, giving it something to compress against when the bolt is tightened. It also isolates the bushing from the mount, so that the sway bar doesn't tear up the urethane during movement.
LE - everything is fine with your setup. Nothing to worry about.