Dart1917 was right. It was the bearing. That explains the grinding noise.
Here's what I saw when I opened up the top. I couldn't get the transmission to turn. I think the shaft might have been pinched on some debris.
View of the read end and bearing remnants.
The shaft fell right out once I got the transmission out. The shaft is chewed up around the bearing slot.
Soo...should I even try to rebuild this? It seems like I could buy three replacement hydros for the cost of the bearing, shaft and replacement seals. But it would be fun to try.
And yes, everything was filthy. I wonder if the fluid level got low and then all the extra "insulation" led to overheating and failure? The fluid level was definitely well below the hole in the rear end. But never so low that I had drive issues. (Until the end!)
Thanks for all the advice.