Sorry - didn't read your first post thoroughly before replying. I thought the inner seal was supposed to seal against the end of the bearing journal on the shaft. If the bearing retaining ring is too tall, it might have rubbed against the seal or pushed it farther into the axle housing. I never did anything with the '97 axle as far as pulling and replacing the bearings and seals. The '98+ axles all use a threaded retainer that screws onto the shaft and is secured with locking-tab type of washer. It's a nice design - beats using a grinder and a chisel to the split the old retainer. If you need the seals and bearings, let me know. I can measure the retainer thickness to be sure they are the right ones.