Thanks all,
This car was undergoing a complete restoration but the previous owner ran out of money and the car sat for many years in this partially restored state. The axle looks like it was restored to some degree as there is no road grime on it and it appears to have been repainted. But I have no records on what was actually done to the axle. But if they did rebuild the axle they should have filled it with oil prior to reassembly in the car. So, it Looks like I will need to pull this axle and go over it completely. A good winter project!
Senc, I have a typical wheel puller but any information you can provide on your puller would be appreciated.
JBcollier, I have heard that ring gears and pinion are hard to find so depending on what I find, I may have to go with the upgraded axle (Escort? TR7?). During the restoration, it looks like they went with the wider S3 rear fenders so, maybe blessing in disguise.