Although answered already I ask for others input into the amount of oil vapour getting past the seal. ( or is there a possibility of a hairline crack in the actual transfer case - which allows oil through and perhaps adds a bit of unwanted movement)
It doesn't look like the flywheel is creeping up the crank taper - nor that the bolts in the ears of the backing plate are sticking through - but it does look like your oil pushing past the seal plus particle contaminants have made a rubbing paste if clearances were tight
Answered
