What's the red on the inside of the housing? I assume you also figured out how to get the extra fluid out.
I just fixed this same problem on my TH400. It would start leaking if it sat for 2 or 3 days, and lose about a quart of fluid. I had put in new seals, but it still leaked. So I took the housing and gear to the tranny store, where they found the groove in the shaft. I put on my glasses and could see it, too. Felt like and idiot, but it stopped the leak.
when you put it back together, check the fluid with the vehicle level. Don't overfill it. Then after you start the beast, check the fluid level in neutral after the tranny's warm.
