I've never seen a pliable lip seal fail to do it's job unless it was cut or had begun to disintegrate. Even the ones that were rock hard would start to work after they warmed up. If the trans is still in the vehicle I wouldn't remove it. Did you check the governor valve on the tailshaft? Would the valve flop downward on both sides when you turned the shaft?
when I aircheck the clutches in the pump when sitting in a vise they seem to seal up really well, then when I put them in the tranny and aircheck I hear a lot of air coming from I think the front clutch, somewhere in that area
