Assuming that is the late-35 or 36 bearing, they ALL do that, and it chews up the front of the bearing, dumping pieces of metal in the oil. The assumption is fairly safe that it is the late bearing, because the earlier bearing actually seats on the earlier pinion. Yet another good reason never to run one of these without having a look inside.
There are a couple of possibilities why. The first is that it was never all the way in in the first place. On later designs that uses a similar bearing setup, Chevrolet had a special tool, a fork that goes under there to drive that bearing all the way in. Filling station has the tool and I bought one. The thing is, I don't know for sure if there is clearance to use it in this axle, as there is nothing about it in the shop manual for these 36-type rear axles, and I have still not final-assembled mine. With no tool, you would definitely want to reach down between the teeth with a skinny brass drift and a hammer and drive the bearing all the way in. There's nothing about that in the shop manual either. The bearing isn't going to go all the way in on it's own. It is going to hang out there and drag on the pinion. The other possibility is that it WAS in, and it walked out because it was not a tight enough fit in the bore. It can't really be that tight or you would never get it apart.
I plan to put about 3 tiny drops of red loctite on the outside of the bearing and drive it in either with the fork or a drift, whichever works better. That will make it a huge job (involving heat) to get the shaft back out. I suggest you don't try that until you are REALLY SURE everything else is OK, like the front bushings, the cork or seal, the surface that runs on the bushing, and most importantly the pinion depth. I have not taken one of these apart yet that didn't have the bearing unseated and dragging on the pinion, and I simply don't trust it to stay in. Others with more experience may have better advice on what to do.
