This is what the remainder of the gasket at the bevel gear housing looked like. It literally wore through the gasket and started leaking. All of the bolts holding the housing on were gutenteit and I could not detect any movement. I also laid a straight edge across both the housing and the engine case to check for warpage. None detected. I did find that my driveshaft u-joint was bad, not real bad, just kind of stiff side to side, up down was alright.
I've decided to blame this on inferior gasket material(cheesy paper gasket, I found that older bikes used a different part # gasket which is no longer available, also heard rumors that Big K had stopped using asbestos gaskets) and a bad u-joint. We'll see how long it lasts. Update 6-19-05, I talked to a guy who had just replaced his gasket(which had worn out in the same way mine had), Kawasaki has switched to a metal gasket.