Hi.
When you lift the boat flush the leg with the same oil as is in the engine to remove any moisture. Let it drain over night.
Replace the oil seal(s) if you are in any doubt as to the history of them being changed or the wrong oil being used.
All Volvo drive legs must have the same oil in them that is in the engine. But at one time they recommended ATF.
On the drive shaft, check that the old seal(s) have not worn a grove on the output shaft, it should have been checked when they were last replaced. (this will look like a thin shinny line running all the way around the shaft)if its excessively worn new seals will still let water in. The shaft needs work in an engineering shop or replacing.
Look at the output shaft housing that fixes in to the leg, it is held with a couple of hex head bolts behind the prop or rope cutter just behind the leg anode. Is the casting line disturbed? Is the leg antifoul cracked around the joint? (The joint in the case is about 15-20mm from the end of the leg...)
There are two large O rings that seal the output shaft bearing housing to the leg. These must be replaced and the seating thoroughly cleaned if the output shaft housing has been out to check end float or change the inner seal. If the joint between the two castings shows movement or cracking in the antifoul it is a good bet that the O rings are disturbed and water is getting by.
Replace the O ring on the base of the sail drive, first cleaning the cap bolt and the drive bedding point with thinner to remove any antifoul or sealant that may have been put on at some time.
Bed the o ring on a little silicone grease so it does not tear or catch when it is tightened.
Finally, get a half steel drum, block it up under the leg and fill it with water with a hose, leave the hose running and check the prop will not hit the drum when it rotates.
Run the engine slowly for an hour or two in forward and reverse.
Still getting milky oil?
Buy a canoe.
Hope this helps.
Ant.