Join Date: Nov 2009
Location: The southern armpit of California
No. Sanding won't help, but you are correct in suspecting the slip yoke shaft as the culprit. If the seal is correctly seated and undamaged then the reason you still have a leak is because the slip yoke shaft is worn. The tolerances are very close for the slip yoke and the bearing. Paint won't fix it.
Replace the seal and bearing in the tailcone housing, and the slip yoke - then your leak will go away. While you are at it, might as well replace both rear driveshaft u-joints for good measure. If the slip yoke is worn, it's a good bet the u-joints are too.