When checking the oil in the rear differential, I found that it was almost empty so I added a quart. When I stuck my finger in the hole to check the level, I found that the oil looks like it has water in it. After looking around, it looks like oil is leaking out where the rear prop shaft goes into the differential. Could this also be the source of water or do I have two separate problems?

 

Ya u may have a water jacket leak? Start rebuilding, took me six months to do mine, I waited on the machine shop to mill the heads, rework the valves and put new valve seats in. They are the best in the state so the wait was worth it.

 

Drain, it and refill. Check again in a few days; Also if you haven't cleaned out the axle vent tube be sure to do that, it can cause moisture build up if clogged.

 

Ya I got stuck in a creek once for an hour and it flooded both my diffs with water. The 4 seals on the axle are the bearing seal (the one you described) , the 2 hub "O" rings and the breather on top of the axle.

If oil can get out, water can definitely get in.

Changing that seal will take a few hours the first time around and you will need a gear puller to get the assembly off if I remember correctly.

 

What do the water jackets and heads have to do with milky differential fluid?

 

I did not realize Nevada also legalized it.....

Forreal, do what bill said.

 

I think he read it too fast and thought he was talking about milky oil in the engine

 

I am going to agree with this. Had same problem with front diff. The vent tube was clogged. I also have a slight leak on the right axle seal, if oil can get out.. other stuff can get in. Changes the front diff fluid twice in 1000 miles as kind of a flush. Cleared the tube.m. been clean ever since.

 

change your fluids and check your vent, could likely be an axle seal they are designed to hold gear lube in not water out.

 

After looking for the oil seal I see there is a Proline and a Genuine. Is it worth the extra money for the Genuine or are the Proline a better deal?