OK, post 11 is much better. The play you feel is from the ball bearing in the tail shaft as long as the nut is at the proper torque.

Since the nut is staked on, it can be tight against the threads but not place any pressure against the yoke. What happens is the splines and yoke plus end of ball bearing to face of yoke work against each other causing fretting. This loss of material continues until the yokes splines wear out causing it to stop transmitting torque.

The nut might spin once the yokes splines are worn out, but until then the nit will remain staked. A test of this is to tighten the nut and see how far it turns. Sometimes the staking flat on the shaft will allow tightening without unstaking. After you reach proper torque, just restake on a new portion of the nut.

In other words, the splines don't just strip out all of a sudden, they start to wear as time goes on. This kind of wear also happens to rear axle stubs on the wheel side but rarely get to strip out levels. The rust you see is from fretting not water getting in and rusting the surface.