Just pulled the drivetrain out of my 95 impreza wagon 1.8l 5sp awd for a noise coming from the tranny/engine coupling area. After i pulled them apart i noticed that the throwout bearing made the same noise i had heard. Inspected the clutch, the reinforcement was showing through the clutch pad, it was very worn. there was a bunch of red dust all over the flywheel and the front seal on the tranny looked to be leaking. Is this red dust from the very worn clutch or the grease being burned up somehow?

I am just guessing on this. I think it is from the clutch plate wear. I think if the oid seal leaks there has to be a path to keep the oil off the clutch plate. The design would allow the oil to drain out and not get on the clutch. I think the clutch would not work well with oil on it. It would slip