So, back to the OP's problem... I think his heater is too small. 32,000 BTU for a 1000sqft shop with 11' ceilings is a little too small IMHO. Should be using something closer to 45,000 BTU.
I am running it just as pictured. That is exactly how the instructions said to have it during operation. If that's correct or not I don't know. The instructions leave at bit to be desired. They give you no information on any recommended adjustments.