I think it looks good 56. Some clean up as you said and reassembly with all the parts should do it. Some wear on the collar but no chipping.

The "stick out" everyone refers to, sets the total end play for the overdrive gearset. There needs to be some and not too much. Too much and it will pop out of gear. Too little and when it gets hot it will lock up. It doesn't need much, I don't know the spec, but I would guess it is somewhere around .010". You might be able to pull the PTO cover after install, and check the end play there.