After seeing that first picture I was going to say you have a hinge forming on the left mid/outer limb.
Yes go for a low brace height now, like 2 inches off the belly.
Once you have done this post a photo.
A longstring should still touch the belly of the bow once in the nocks, you should have to bend the bow a little to get it on/off. Too long a string will make the true bend of the outer (once braced) look stiff. That is because the braced bow is being pulled inwards as well as down when actually bracd and drawn.
Also what wood is this? 2" wide for a 40# bow is likely too wide. When the stave is too wide the trhickness will be an issue. Mainly because as a bow gets thinner and thinner the shavings you take off become a greater percentage of totally limb thickness....so it is very easy to make a hinge. As long as this is decent wood I would reduce down to 1 3/4", brace it pull to draw weight. Monitor set, you could even go narrower but this depends on the wood type/denstiy.