Collin,
It has been over twenty-five years since I was into the final drive of my Mark 3, but as I recall the felt seal was entirely behind the flange of the hollow shaft. And the Maintenance Manual implies as much. So yes the final drive housing needs to come off the transmission case. At that point it will look more like the figure on page 52 of the Maintenance Manual, as you will have already removed the sprocket an shock absorber. I do not believe the draw bolt can be removed, but it can be left in-situ and taken out once the housing is removed from the case.
Once you remove the bevel gear, the hollow shaft is easy enough to remove. You do not need to disturb the bearing. Then replace the felt or use a lip seal as Neville suggests.
One point of note. When removing the final drive housing, take care to preserve any shims between it and the gear case. These set the mesh of the final drive gear. They are often peel-able brass shim stock, and so can be fragile and prone to distortion. If you put the shims back as you found them, you will not have to go through the exercise of setting the depth of mesh.
-Doug
[Fix typo. 07Aug14, -Doug]
