Page 29 of the report - picture. At X750 feet on the altimeter, the broader part of the needle obscures the thousands of feet and the tens of thousands of feet on the counter.
CM. If a stude at BFT did similar and claimed to have mis-read his alt by 1000ft due to an obscured readout I'd kick his behind and want to know why he wasn't glancing indoors to monitor the dials during the pull-up of the loop. Apex gate is most certainly not a single 'snapshot' glance indoors. Furthermore, the % difference between 2700ft and 3700ft is huge.
Now say a court of law wants to find a C130 captain not guilty of taking off someone's head due to a faulty rad-alt, then so be it, but to claim that is the actual reason is a very poor excuse. You could apply similar to the 'possibly mis-read' altimeter.