If that rubber seal is sticking out of the end of the ball housing by the threaded collar then it has to be replaced which entails undoing the 4 bolts at the rear of the trans, un bolting and removing the u-joint then taking the housing off. The seal goes in that threaded collar. Sometimes you will find a thin metal ring the same diameter as the seal. I think this may hae been used to hold the old felt style seal in place. Having said all this I am assuming you have a torque tube driveline.
