where 1 is the bottom of the incline plane and 2 is the top. and 0.05m is the distance between the 2 points. (using bottom of incline plane as reference point)

I found the hight at 0.05m up the incline to be 0.0087m and the x component of gravity to be 0.17N

You made several errors:
(1) The initial KE is zero. It starts from rest. The initial energy is spring PE.
(2) The final energy is a mix of gravitational PE plus KE.
(3) If you include gravitational PE as a form of energy, then you don't separately include the work done by gravity. (The gravitational PE is the work done by gravity! To include both is to count it twice.)

The confusion is coming from how you define "initial" If you define initial as when the spring was still compressed and held in place, the kinetic energy is zero, the spring potential is at [tex] U = \frac{1}{2}kx^2.[/tex], which when let go, will convert into the ball's kinetic energy completely.