Hey Muddy,
Is there an eyepiece in there as well?
If there is then your setup will be fine. It is called afocal photography. I find as a rough rule of thumb, focus on you finger or hand at say 1 to 2" away and then insert into the telescope so that the camera looks at the image on the eyepiece. You should be able to focus with the telescope focusser.
The other way is to remove the lens of the camera and then attach the camera to the telescope but without the eyepiece. This is called prime focus. You use the telescope focusser to focus. With a toucam you get high magnifications ie 208x in my 10" reflector
This televue article is a good one
Hope it helps.
http://televue.com/engine/page.asp?ID=236