Yes, you do need to replace the pads, but not the drums unless they have been turned too many times or have grooves worn in them. Otherwise, just have them turned and reuse.

Leaking rear axle seals are pretty common. Marlin Crawler makes an HD rear axle seal. Check out his site at www.marlincrawler.com I'd HIGHLY reccomend this seal.

Yep, easy to screw up the seal. I just did mine recently, and screwed it up. Its leaking now. So I'm going to redo it with a marlin seal. When insalling the axle back into the housing, you want to be very carefull not to let the axle rest inside the axle housing before its inserted into the differential. If you let it rest on the housing, it sits on the face of the seal and deforms the seal instantly. Also I've hear people reccomend putting grease on the lip of the seal before installation.