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How much was it smoking previously? Too much smoke (oil) is a whole lot better than not enough smoke (oil). If you are mixing the oil and gas then cut back on the mixture. Obviously it is out of balance. Put 1/2 gallon of raw gas in the tank to cut the mix. After a tank or so you should get the balance back.
You need a new shift shaft and probably need a new shift lever due to the bad splines. You can try the JB Weld but I suggest that you go ahead and drill the lever an shaft then put in a cold roll split pin from the hardware store. You have nothing to loose since the shaft and the lever are already toast.
Your bike is water cooled. Some of that water is leaking into the gear box. The cylinder gasket is the likely leak. I would let the shop take a look at it instead of trying to fix it yourself.
But be sure there is not an external source for the water. Do you wash the bike often? Ride the creek bed often? Leave the bike where the lawn sprinkler gets the bike wet? Leave it out in the rain? Change the oil and keep the bike dry. If the problem comes back then go see the dealer.
The gasket on the gear shaft is dead. Water runs around it between the outer cover and the gearbox, and unfortunately the gear shaft needs to go all the way through them to get to the 'box. There should be a flat O-shaped gasket around the shaft, and that's leaking water into the oil, and out the side. This is a pretty tough job if you havn't got the right tools, so maybe rather take it to a workshop mate! Hope that helps!