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Here you go:
http://www.steelsoldiers.com/showthread.php?5935-leaking-axle-seal-repair.html
http://www.steelsoldiers.com/showthread.php?33428-rear-axle-seals.html
http://www.steelsoldiers.com/showthread.php?22288-rear-axel-seal-step-step.html...
1. Yes. The seals are supposed to keep the oil away from the bearings.
2. The key way was probably the culprit. It is generally a cork type material that slips in that key way, well it disintegrates.
Now I know there are a ton of threads here describing all the answers to these questions. I...