Sorry for the noob post here, but after a year of owning a 2012 L2, what no one ever told me and is critical to understand, is that the rubber piece is what holds everything inside the handlebar tube. When you tighten the screw you are pulling the nut closer and causing the rubber to bunch up and get thicker, thus squeezing against the inside of the tube and snugging the unit down.
Mine fell off at a rest area because the rubber was torn slightly (probably due to over-tightening) so to repair it I cut the damaged part of the rubber off and now it works like new.
I'm sure the regulars are rolling their eyes LOL but I honestly never knew what magic was happening inside. Maybe this will help someone else like me.