What about the rust on the shaft near the thread end where the impeller screws on? Should I remove this rust with some light sand paper?Absolutely no lubrication should be put onto a mechanical shaft seal. Not even onto the rubber cup for the ceramic piece or the rubber that is on the shaft. The face where the ceramic (white disk) and carbon (black disk) should be kept as clean as possible. You shouldn't even touch them with bare fingers if you can help it.
The bad seal could cause the motor to not spin well. When you put the impeller on it compresses the spring in the seal pushing the carbon and ceramic together. Normally those faces spin against each other and the carbon face will slowly wear away until the seal fails. Which under normal operation will take a very very long time. Things like running the pump dry, cavitation from suction air leaks, and overheating the pump will drastically reduce the life of a seal.
So no lube on shaft seal...got it. But the seal plate gasket and diffuser gasket should have a light coat of lubricant correct?
Could all this (bad shaft seals, cracked grommet housings, bad seal plate fit) have also caused air to get into my pump basket? Reason I'm asking is because I've noticed (ever since we bought the house a year ago) that I've always had a more air in the top of my pool pump basket than my spa pump basket and often I would get air bubbles (sputtering) coming from the pool return jets at times.