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Yeah the seal is in straight and all the way, I have rebuilt type I engine before without ny problems as such. I'm not new to air cooled vw's, and I have never experienced any problems like this before. I also instaled a new flywheel o-ring seal last time and lubed it good too, but as I can see, it didn't do any good. When you put the seal in, are you getting it in straight and getting it in all the way. It should be pressed in until it bottoms out in it's recess. If the seal is not all the way in, it will rub on the back of the flywheel. Also, as to the seal between the crank and the flywheel. There either should be an o'ring, or gasket, not both. And it depends on which crankshaft you have, as to which you use. Russ Wolfe Mahle-Parr Filter Systems ------------------------------------------------------------------- List info at http://www.vwtype3.org/list or mailto:help@vwtype3.org