That should clean up fine. I've only replaced mine once, so I cannot comment on the 2 grooves on the shaft. The tube that looks deformed (I don't think its supposed to look like that) is a sleeve. The part that the sleeve is connected to is the water tube coupling, and it has 2 o-rings inside it. When connecting the upper and lower units together, the water tube in the upper unit goes into the sleeve and then into the coupling and is sealed by the 2 o-rings. To me it seemed the sleeve was there to help guide the water tube into the coupling before the other parts of the upper and lower units (other than the shaft) made contact.
I can't imagine why the sleeve looks like it does, however I'd replace that and also would check the condition of the water tube in the upper unit.
I believe the only other seal is the face seal, which is at the bottom of the shaft in your pictures
I can't imagine why the sleeve looks like it does, however I'd replace that and also would check the condition of the water tube in the upper unit.
I believe the only other seal is the face seal, which is at the bottom of the shaft in your pictures