What advise for using spacers on MTB rear forkend I have a Cannondale MTB frame I'd like to make a cruzer by adding a Sturmey Archer 2-speed kick shift. The SA axel length is 162mm and the spacing is 116mm but the Cannondale spacing is 135mm (remember this is an aluminum frame so it's not flexible). This doesn't leave a lot of room for the nut! 

In my mind as long as I can get the chain rings to line up and tighten the bolts I should be good!?
Sheldon Brown has a good page on frame adjustment - I especially refer you to his instructions on aluminum (and carbon) frames - DON'T 

As long as you can get the nuts on far enough that axle thread is visible, you will be OK, however, at 13mm for the frame, washer and nut, I will be surprised. You might be tempted to use a smaller spacer and compress the frame. I have no idea how much would be consider too much - 1, 2 5mm? I would have a guess 1 or 2 is fine, but 5 might be pushing it. 

You should be able to get the chain line correct by changing spacers, however it might also mean redishing the wheel.   

How do you plan to adjust the chain tension. Are the dropouts on the frame horizontal?