
reel2reel, whta you are seeing is the unburnt gas and oil all 2 strokes exhibit when they are left "hanging" NOT LEAKY SEALS as was mentioned before.
The problem with some of this replies is that the replyer is unimformed because OF LACK OF EXPERIENCE.
What I think you do need is a thermostat because alot of this residue is produced from prolonged idling. If the engine does not get to 140 degrees it will not burn off all the gas and oil thus leaving a tar like sudstance in the exhuast. Time and gravity means that this residue will slowly leak out any drain holes. The hole it is leaking out on your motor is to drain the shift rod galley and also the water pump.
I HAVE NEVER HEARD OF A CRANKCASE FLUSH FOR A 2 STROKE that is a 4 stroke procedure and not for 2 strokes. I'm wondering how one would go about this 'flush' and I hope jp could explain.
As the intake charge goes through the engine the gas washes the oil off the bearing surfaces and that is why there is OIL mixed with the gas.
So reel2reel don't get the seals changed if they are leaking you would see gear oil not unburnt gas residue coming that hole.
A pressure and vaccuum test can determine whether there is a leak and any GOOD shop will be able to determine that.
You should be changing the gear oil anyway and winterize the motor.
From the color of the motor it looks to be in the 70's late not the 60's, if it is a 9.9 and not a 9.5, 1974 was the first year for 9.9 and the model # will determine that.
Remember the advice is only as good as the source and if the source is has no experience so will the advice.
I try to answer these questions so you guys get good advice and don't get ripped off by the shops and in this case it could have happened if you brought it in to get the gearcase resealed.
I'd still like to know how to crankcase flush a 2 stroke that's a good one.