wellssc2002,
I have only worked on one old Ford tractor in the past, but I will give you my thoughts.
First, why do you have moisture in your oil? I found that my neighbors old Ford 600 had obvious water contamination in the transmission and hydraulic oil when I went to service it. The tractor sits outside all of it's life, so I assumed that the contamination was from worn/cracked seals and boots. When I got the tractor in my shop I found that the boots (shifter boot mostly) was in great shape and didn't appear to be letting water in. And since I have driven the tractor many times and have never found oil leaks from any of the seals, so I a guessing that water isn't getting in from those much either. Then I noticed that neither the transmission or hydraulic sumps are vented as far as I can tell. So, my theory is that the tractor never gets allot of use, 15-20 minutes at a time, so neither the transmission or the hydraulics get up to temperature high enough to burn off all of the moisture in the oils. The engine obviously gets up to temperature in that time so there is no problem there. And the lack of a vent in either compartment adds to the difficulty of burning off the moisture in the compartment. And the moisture that I see getting in there is condensation from the castings.
So, that is my theory on why you might have moisture. Now, and again this is where I don't have allot of specific experience. I would open up the transmission fill and check to see the condition of the transmission fluid. First see if there is excessive moisture in there, either water droplets or foaming of the oil, and if there is I would change it. Also, you might be able to determine if there is serious mixing between the compartments if the fluid level is extra high, or if the gear oil looks particularly think from hydraulic oil thinning it. Also, I would suspect that it would be easier to tell if there was gear oil in the hydraulic sump due to the strong smell of gear oil. If the hydraulic fluid has any gear oil odor, then you have a problem. Either way, if you have a leak between the two compartments I don't see a difference in the problem between new oil and old. Unless there is a major leak, I would treat them as the two separate compartments that they are. Change the hyd. because you are having a problem, and change the trans if you find a problem.
Lastly, as far as "flushing" the system, I am not a fan of using anything in the system other than the fluid that is recommended for the system. Many, many people have used diesel, and ATF, and other concoctions to flush systems over the years, with varying success, but I do have allot of experience with engine building and have worked with several oil companies on lubrication, and I have never seen an upside to using something with vastly different properties in any sort of a oil or hydraulic system. I have used ATF in the past to "flush" an oil system, but only on an engine that was junk and I was going to have to replace anyway. More of a last ditch effort, and in the end it didn't help me allot.
Drop you hydraulic oil. Inspect it for shavings or other contamination, and if you don't find any, refill with new fluid. If you have the chance, try to work the hydraulic system long enough to build some heat to evaporate any condensation in the system from time to time.
Sorry for all of the rambling and good luck on the project.
R.J.