THANK YOU! Now that you mention it, the amazon link I posted shows it with the felt on top in the pic as well lol. I thought it was supposed to be at the bottom due to how the original filter was in it originally.

The leak appeared before I replaced the water line, but I didn't see any kind of restrictor when I changed it. The only thing that was on the line was a compression sleeve on the outside and the compression nut.

It drains into a condensate pump which then pumps it into the drain. I'm thinking the cloth is there to help prevent the pump from building up a bunch of stuff. I had the same idea about using plastic shortly after making this post. I 3d printed a 2mm thick plastic thing that clipped onto the bottom to raise it up slightly. So far it seems to be working fine.

I think it helps it filter out stuff? I'm not completely sure, but that's how it arrived and it was also on the previous one. I tried to see if I could take it off earlier, but it didn't really budge.