I don't know much about the H20 mast...but yes, seal the base. Second, the mast ball should be on there tightly - you should have some sort of captive system that pins the mast to the ball when raising or lowering (remove the pin when sailing so if the mast were to come down for some reason, it can float free of the step).

From your description, it sounds like you are saying that the ball is so low to the beam that when the mast starts to lower, it gets wedged and the beam forces it to pop off the ball....that would definitely be some sort of problem. Could you take some pictures? There are some Hobie representatives that frequent this forum and I'm certain they can illuminate the situation.

To seal rivets, goo them up with 3M 5200 before setting them in the hole. Set them and then fill the center of the rivet with more 5200. Clean up the goo with Mineral Spirits (makes it look really nice!).