take your distributor down the hardware store and pick up a high temp rubber o-ring that is slightly bigger in diameter.
i did that and have not seen a drop of oil come out. makes it a bit tougher to adjust the timing - but small price to pay
You can replace that seal to start with but most likely it will not fix the problem. The issue with the dizzy is on the inside where the shaft goes through there is a bushing in there that gets worn out and leaks. Do a search on leaky distributor and you should find someone that has fixed one.
EDIT: Read this thread http://forums.vwvortex.com/zerothread?id=648889 http://****************.com/smile/emthup.gif
I've fixed several, and that is not the seal that leaks. If you have oil on the INSIDE of the distributor, it's the seal around the shaft. You have to disasemble the distributor but it's not that hard. Check this out. http://www.gti16v.org/16vfaq.htm#16vfaq
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