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That looks typical. Those motors had lousy grease seals and were usually neglected. Owner’s manual said to drain off water and refill with fresh grease “periodically”, whatever periodically means. Back in those days it might mean every time you use it on some motors.
Anyhoo, clean it up and use it. It will run a long time with the wear if you keep it greased. I’d venture to say at least half of my motors had such wear, but they don’t know it.
There is another screw on the opposite side of the gearcase, just an ordinary screwdriver slot-type screw. That is the vent screw. Interestingly, the owner’s manual calls it a “drain” screw. Pump grease in the large fill plug hole till it comes out the “drain” screw. I do it with the motor on a stand and tilted up so the drain/vent screw is up, although the manual doesn’t specify that.