I agree with the tire rod flip idea. I was thinking of that as a solution when I first saw the pictures he posted.
Let me pose one more idea. I cannot tell from the pictures, but could it be that the top of the knuckle is not flat and when the hole was reamed, it made it look uneven? If you drill a plumb hole through a piece of metal that has a sloped surface and then ream that hole plumb with the hole, it will look oblong. This was only an idea and I cannot tell from the picture, but it could be an explanation. I cannot even imagine how that tapered hole could get damaged like that. The tapered end of the tie rod end should have kept the tapered hole in shape.
The taper may be good in the bottom part of the hole and the misshapen part may not really hurt anything.
You know it is possible it is an illusion, but I really don't think so. I took a million pictures trying to be able to see it better, because even in person it is difficult to see. The other side looks perfectly circular though so I think if it was drilled off square that side would also look oblong.
It may have been there all along. I bought the jeep 6 or 7 years ago and the PO had already upgraded the tie rods with extra heavy duty units, so maybe the original tie rods were damaged, and this damage occurred then? who knows. The only way I can imagine this sort of damage happening is if the tie rod end was loose, and you continued to drive anyway, but that was definitely not the case at present.
I'm inclined to put it all back together with new ball joints and tie rod ends and worst case scenario I can install inserts to repair it if needed. Or do the inserts have to be installed with the knuckles off the axle?
The only new knuckles available are from Crown, which doesn't inspire confidence and they are $145, with used over the internet they are cheaper, but it's a crapshoot. Either way it's at least $100 I didn't plan on and can't afford.
I also have another question. When I called the local shop to ask them about pressing in the joints for me the guy asked if I knew about adjusting the pivot at reassembly. He said that sometimes it takes a few times with the split ring. I mentioned the torque's 80-50-100, he let it go, but it sounded like there was more to it. I've read a lot of writeups about Dana 30 ball joints, and I don't remember seeing anything about adjusting the pivot. Did I miss something?
Thanks again for all the help