Well it has taken some time but here is what has happened on this happy adventure. The owner gave me permission to do whatever I felt needed to be done to fix the tractor (finally got into port where they could get their e-mails).
So I replace the hose section that was collapsing and cracked. Started it up and was able to raise the bucket a couple of times but the second lift was clearly lacking hydraulic power. I shut it down and the new hose was looking like it was about as collapsed as the old one. I loosened the bolts to the suction screen and drained the oil. Some ugly globs of stuff were coming out with the oil. The screen was completely covered in this same goo and pretty much preventing much oil from going through it. As the last bit of oil drained out some large globs of the goo came out too. I made a tool to insert into the hole where the screen goes and scraped out the bottom of the case and more of the goo with a bit of oil too. I removed the spin-on filter and cut it open, removed the paper element and spread it out and did a thurough inspection of it. More goo but no metal filings. I trolled the oil in the buckets with a strong magnet and got a few filings, about enough to cover the eraser of a pencil. I don't think this is a concern but I'm not familar with what to expect in a tractor.
I suspect water has gotten into the case and is allowing the goo to grow. He leaves the tractor outside, uncovered here in the Pacific northwest where there is lots of rain and high humidity. If the water didn't enter directly in could easily have condenced as breathing through a vent occured.
Questions: is there a vent somewhere on the case? The goo and somewhat brownish tint to the more contaminated oil points to water, would you agree with that assessment? What can be done to prevent this from occuring? Are there bio-cides that can be added to the oil?
The screen cleaned up nicely with several washings (there is no paper element in the suction screen) and can be reused. I plan to shoot a small amount of oil through the opening where the screen goes and try to wash any remaining stuff on the bottom of the case out through the drain hole. Then reinstall the screen and a new spin-on. Refill with oil and then run the tractor for a few hours and then redrain, clean the screen again and if there is any trace of goo or discolored oil, replace the spin-on again and put in new oil. Any comments or suggestions on this plan would be appreciated. If there is a better way to deal with this problem I would appreciate hearing from you.