slight oil in the vac modulator is 'normal' as it seeps around the screw threads. However, the bad news is the tranny is due for a rebuild. The reverse clutch linings are probably gone, internal pressures low (leaking internal seals), and or the oil pump shot. I presume the mechanic did check the operating pressure and it was correct?

Anytime you have to adjust the modulator (after initial setup), it indicates significant wear and/or internal seal leaks--neither of which are good. Deteriorated shift quality is a serious sign of wear/impending failure.

Even small amounts of water are death to the clutch linings.
(I suspect some defective friction disc's were made since I found 1/5 in my reverse clutch flaked off, 4/5 in the disc brake clutch flaked off, and the back clutch was like new)