shimano 14-34t megarange casette not shifting to first gear I bought a new deraluier and it wont shift to the first aka largest aka closest to the wheel / dropouts gear its about two inches too high. So it (the deraulier) knocks into the largest easiest cog. I've fiddled with the B screw already tightening it all the way in. But the deraulier jockey wheel keeps rubbing against the first gear cog on the cassette.

The smallest aka High Limit screw is already correctly adjusted I believe and I just had the deraliuer and hanger replaced so they are straight.

As the picture below shows (the deraliuer is too high, not enough vertical distance between the hanger/dropouts and deraliuer jockey wheels.

The gears are currently on (1/3 in front) and (2/7 in back) the largest cog easiest gear to ride in is 1, which I can't switch to.

I have a 7-8 speed SHIMANO ACERA RD-M360-SGS for $30 AUS 
http://www.cyclingdeal.com.au/buy/shimano-acera-rd-m360-7-8-speed-rear-derailleur/RD-M360



Please help
What does "two inches too high" mean?
And by first gear, do you mean the smallest (i.e. hardest) sprocket/cog?

If so, (actually, even if it's the largest cog), the screw you first want to adjust (before making changes to the B-limit screw) is the high (or low) limit screw.
These are the screws that define the limits of the derailleur in terms of how far in (towards the wheel) or out (away from the wheel) the derailleur can travel.
They are usually marked with "L" and "H" symbols on the derailleur, and are likely close to each other.

If your L/H limits are fine (which you can test by pushing the derailleur by hand to the limit positions) and you still have a problem dropping into the smallest cog, there are a few possible solutions.
First is to make sure your main derailleur spring(s) isn't rusty... give it a cleaning and lube, which might help it go into the fully relaxed position (and thus help get that chain down onto the small sprocket).
Since you say it's a new derailleur though, the spring is probably fine.
Even with new derailleurs, however, sometimes they just can't get into the relaxed position enough for smooth and consistent shifts into that small cog.
In these cases, a (very much non-official) solution is to take off the derailleur, find a thin washer that matches the dropout size, and thread the derailleur back onto the hanger with the washer in place (between the derailleur and the hanger).
This basically moves the derailleur's base position slightly outward (away from the wheel), helping to get the chain onto the small cog.
You'll have to readjust the L/H limits again when using the washer method.
Note too, that the washer must be quite thin, as it takes away from the available threading between the derailleur and the hanger.
This weakens the derailleur's attachment point and can lead to shifting flex or a greater chance of full on derailleur failure if you snag it on branches, debris, etc.

Hope that helps.