3rd member talk (ring&pinion setup etc.)

[NoHachi]

The protrusion is made that way for a very good reason. Its the only way you can add volume to the housing, without changing the oil level. Going lower then the housing reduces already tight ground clearance. Anything above the oil filler cap doesn't get filled anyway. So you see the space you are left to work with.

To high an oil level will cause the gears to act too much like a whisk, beating the oil to a foam state. Foamed oil has very poor lubrication properties. Thats the reason that you ideally don't want to raise oil level in a car that won't be spending much of its time under high G cornering loads.