In just a few words, the bombers do run a pretty flat circuity, with little altitude changes and the fighters do come in from higher altitude with a significantly higher RoD. This implies, that the fighters will have an altitude clearance of (roughly) 200ft with the bombers, when crossing the 1000ft display line. Not much, but there is also a separation in time.
The P-63 did hit the B-17 at (just above 500ft), while crossing the 1000ft display line. Or so to say, the P-63 was far too low at that moment, if its target had been the 500ft display line. Not to say, with the actual RoD and the heavy banking, when hitting the B-17, the P-63 would have ended up far below the 500ft display altitude, when it would have arrived at the 500ft display line (and 500ft further potentially hitting the crowd). All, when the B-17 would not have been there.
I don't know much about airshow management, other than what I have learnt from this thread and watching the Youtube videos. At no time did I hear any altitude separation being applied by the Airboss. The ADS-B data shows quite arbitrary altitudes being achieved during the course reversal (dog bone leg?). So how can you conclude there should've been an altitude separation between the fighters and bombers as they crossed path?