We put the flange\spacers on from the old axle to both sides of the new axle. Installed in all. Took a test drive and it leaks again. After discussing this with someone in my club who works for Toyota USA we discovered the following.

The seal in the diff housing (pictured) has been pushed in too far and damaged. I assume that when we hammered the axle in the first time we hammered it a little too far. Which pushed this seal in too far. Thus knocking it out of it's "seat" and damaging it.
<img src="http://home.earthlink.net/~scttntna/_uimages/inneraxle.jpg" alt=" - " />

Mike will be getting a new one (20.00) from Toyota on Monday and we will put it. We don't have the proper Toyota tool to get put the seal in. So we will have to be careful. It is supposed to go in the housing just under 1/4 inch. My friend gave me Toyota instructions on a pdf on how to install it properly. I "print screened" a page and posted it here.
Install instructions