Even though the primary on 5-speed Iron Barrels is slightly different, I think that the shift shaft arrangement is about the same.
Typically, if the bushing gets worn, the shaft gets out of the center of the seal, and then the lip of the seal cannot really seal it well.
Most likely, the bush needs to be replaced, or perhaps you can drill it, and press in a bushing liner with a close fit to the shaft, and make sure it's dead centered.