If I am not mistaken, maybe Rockola1971 can chime in, that is the output shaft seal that the driveshaft is slipped in to in the pic. That design has the bellows cover at the end to help protect the yoke spline surface. You may have a output shaft bushing that is bad but you did say you replaced the extension housing and that would have come with the bushing and seal. The one here is the other design seal without the bellows:
https://www.rockauto.com/en/moreinfo.php?pk=9483168&cc=1441039&jsn=2322
I have replaced a lot of those bushings and seals. The seal is a piece of cake but again when installing the seal use a seal driver if you can. The bushing replacement is a whole other story. It is not hard if you have the special removal tool and the install tool. If you used other tools than that I would bet you would damage the housing just removing the bushing. I am talking about replacing the bushing with the housing still on the transmission. Is easier if the housing is removed.
That bushing needs the fluid around it to lube it during use. I am no trans specialist but there has to be a flow of fluid to it to do that and of course the seal is to keep it all in.