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Mine had the exact same problem, I talked to a mechanic about it and he said they're usually not worth tryin to fix so I just took my old one off and went to Napa and bought a rebuilt one, it cost about 160.00 plus a 50.00 core charge. I think it was well worth it personally. Good Luck
The Problem with "fixing" the Ford gears is that more times than not the lower bushing in the housing is worn out, and it is part of the housing therefore not replacable in the field, so in that case a Quality reman gear would be the best but, however if the bushing is ok a lower seal is not a difficult job if the correct tools are used,
Hammers will severly damage the gear
[updated:LAST EDITED ON 06-Oct-02 AT 11:36 PM (EST)]When did Ford start using bushings on the sector shaft? All the early 70's gear boxes that I have worked on did not have a bushing. The steel sector shaft just turned in the bore of the cast iron housing.
Also, there are two seals on the output shaft. There are two spacer washers. One between the seals, one at the bottom. The shop manual procedure uses a press to install the seals on a disassembled gear housing.