Alright, I just want to update you guys on what I have done. I have had the car for 2 months now and I have encountered the following problems:
CEL on, deceleration noise, engine old is overfilled and a year old (but not more than 3000 miles since last oil change since it was never driven).
Here are the things that I have done so far:
1) Changed both O2 sensor with Denso O2 sensor, Genuine Subaru knock senor
-CEL resolved.
2) Did an oil change. The engine runs a lot smoother.
3) Changed air filter, PCV, fuel filter.
4) I changed the transmission/front diff oil. I did not notice any broken pieces in the oil but the oil looks really bad. It looks like a greenish milkshake. I am guessing that the previous owner put some type of off-brand fluid in the tranny. I changed the oil with Subaru Extra-S 75w90. By the way, I got the Extra-S from a seller on Ebay and 5L bundle is $75 (including shipping and tax). The manual says that the front diff takes 3.8 quarts of fluid (3.6 L) but I only put in about 3.2L. I guess not all of the oil fluid was drained out.
- Deceleration noise persists even though shifting has improved.
Currently I still cannot get the rear differential screws to budge. I am going to take it to a mechanics buddy either this weekend or the next and try to get the plug loose.
I did a search on the various Subaru forums and the deceleration noise seems like a common problem on the 5 speed. The unfortunate thing is that for those who were skill enough to tear apart their transmission, they found an array of causes. Others have reported that they kept on driving and the transmission hasn't died after 30K.
I think that since the noise is within tolerable level, I will just live with it for now. If it gets too bad I will have to get the transmission rebuilt. I have a faint suspicion that the strange gear oil put in by the previous owner messed up the synchro but I am not sure.
Thoughts, anyone?