Duh. The answer was right in front of me, thanks for pointing it out. I pulled the Chiltons Manual, and it says the bearing goes in first and the seal on the outside. OF COURSE IT DOES ! It has been so long since I've done a rear axle, I forgot about the seal.

Chiltons says there are two kinds of rear axle bearings on the 8.8, one is a press fit, the other is a loose fit. Both work ok. Then it says to install the seal after the bearing seats.

My Son and I are going to pull the axles again on Wednesday night, and see what we have there.

Thanks again for making me stop and think. Don