It actually worked! Ever since I shoved an O-ring of the proper size in there, it hasn't leaked at all. Now I can have a spot-free driveway without having to rebuild the transmission.
To see exactly where this seal is, look at this picture from Stretch's 722.118 automatic transmission rebuild thread:
722.118 Automatic transmission rebuild (Monster DIY)
Unfortunately, a leak had also developed at the selector shaft seal. But, this seal is located on the outside of the case. Unfortunately, the proper way to replace the seal is to remove the entire rear cone of the transmission so the shaft can be unclamped and then slid out of the case.
I had a new selector shaft seal which I purchased four years ago and didn't install because it wasn't needed at the time. I decided that I didn't want to remove the tail cone of the transmission in order to replace the selector shaft seal, and since the seal is on the outside of the case, I took a small flat blade screwdriver and tapped it into the seal so I could remove the seal.
After much work, the seal came out, but to my horror the selector shaft was very deeply gouged all over the seal surface from tapping in the screwdriver. I was in disbelief and wish I wouldn't have messed with it, as now not only would I have to take off the tail cone anyway, but I'd have to get a new selector shaft on top of more seals and gaskets.
I had planned on having to buy the parts (with money I don't have) and go through the whole process, but in order to keep contaminants out of the transmission, I put a little sealant on the outside of the seal and then tried to push it over the shaft, but there is a sharp lip that makes it very difficult to do, which is yet another reason why the shaft is supposed to be removed when the seal is installed. I tried to tap it in place, but it wasn't going in straight.
I pulled the seal back out (and scratched the steel outer diameter in the process), but went too far and it came off the shaft, when I noticed that the sharp edges of the shaft had cut the seal. I applied more sealant to the outer diameter, forced the seal back on and tried to tap it in again. It was going in crooked, but I didn't care. I just kept tapping it into place and denting it in the process. Then I installed the neutral safety switch and selector shaft rod.
The next day I went out to the car and looked under it, hoping it wasn't leaking too much. To my surprise it was completely dry. There was no leak anymore! Somehow the seal must have contacted a very small part of the shaft where it wasn't gouged, and there must be enough pressure against the seal that the cut isn't leaking. What a relief! I still eventually want to fix it correctly, but that can wait. It is so wonderful having a transmission that doesn't leak!
My car doesn't leak on the driveway anymore! Yay!
Lesson learned on the selector shaft seal; don't attempt to do it any other way than by taking off the rear section of the transmission and removing the selector shaft first!
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1967 W110 Universal Wagon, Euro, Turbo Diesel, Tail Fins, 4 Speed Manual Column Shift, A/C
1980 W116 300SD Turbo Diesel, DB479 Walnut Brown, Sunroof, Highly Optioned, 350,000+ Miles