Something is definitely wrong, the gears are mis aligned for some reason. Is there side play in the shafts? Do they turn freely? Is the case warped?

Thanks for your responce.
There is play in the input shaft, which is the pinion gear shaft that goes through a pressed in bearing.
Don't know if there should be some or any play at that point but the shaft probably goes 10 degrees or so off of center, had that play when taken apart and service manuel does not specifi if any rocking motion in pinion shaft at that point. Bearing did look OK but don't know about rocking motion.

Generally speaking it is best to replace both gears at once and ensure that all the case bearings are firm. In those transmissions the one input bearing is the only support that shaft has and must be solid. Ensure the axle bearings are snug as well. I think the whole trans is $60-70.

Thank you, Tomplum, for your responce.
Do you know, when the pinion gear is in place, is there any deflection of the shaft,(side to side), or does the bearing hold the shaft in a stationary place,(no deflection), only rotates.
The bearing is solidly in the case, that is why I question wheather the bearing is good or bad.
I am doing the work myself, have limited finaces - unlimited time.
Thanks again

The input shaft bearing seems loose to me. You are adding lube, correct?