That looks nasty....
I would be concerned about metal dust contamination throughout the entire rear axle unit....
IMO....the rear end needs to come out and be fully rebuilt with new bearings, crush sleeves and seals....as a safety mechanism, I always use Red Loctite on a NEW pinion nut after I get the preload values correct....
You may be able to just get away with a new nut and loctite, but it really needs to come out and be done correctly....
