the transfer valve is a one way valve and flows from clutch to flywheel case. it is a spring loaded disc valve that checks flow but really depends upon dynamic forces to seal it as when the pistons travel downward. the pressure created by the pistons is used to force pooled c/c oil through the breather valve in the cam case. yes this valve will leak when the engine rests and the oil is pulled back in on the up stroke and a calibrated vent hole in the clutch plug allows for air to enter so as not to cause a vaccumn in the tranny. yes, do not plug it as wet sumping can lead to engine damage.

 

If you block transfervalve you need to make ventilation to primary or transmission. Easiest way to do it is (pre -77 bike) is remove on of bolt from engine rear mount and replace it. Factory did it with bolt OEM 34744-77 Fitting, crankcase vent. You can also ad this ventilation next to starter...

Crankcase breathing is different in pre -77 bikes, it's controlled by oilpump breather valve.

IMO if transfer valve is ok it should only work so that flow is from primary to crankcase.
And engine breaths from that tube out from cam cover. In pre -77 bikes there is just tube out. When pistons is going up it creates vacum into crankcase, breather in oilpump blocks that vacum from crankcase to gearcase and out. Other words there is pipe out it will draw dust into crankcase when vacum exist. When pistons are coming down it created pressure and timed oilpump breather valve is opening and allows pressure released into gearcase and from gearcase out from breather tube.
If transfer valve is broken/leaking it allows motor oil pass to primary..

Newer bikes there is valve and tube in gearcase. Why valve ? it blocks breathing out when vacum exist. And primary/transmission has own breathing hose.

This is my opinion about this, correct if I'm wrong :-)

 

Pinion, Thanks on the oil explanation.

I just got a 71 xlch with 8200 original miles on it. It sat in the homeowners basement, next to the furnace since 1999.

Thus, all of the lubricant was in the crank/primary. Therefore, I drained it all.

Do you recommend a flush for the motor? If so, what? There was a little fuzz on the magnetic tips for the drain plugs.

 

No, I would not try to flush the motor. All that will do is disturb sediment better off being left alone.
Just drain the oil tank (if any oil remains) and the primary and transmission.

Then replace the trans/primary oil with 24oz of engine oil.
Fill the oil tank with the remainder of the 3 qt. of engine oil.

Run the bike for 250 miles, then drain the oil tank, primary and trans while the engine is hot and refill with oil again.
You will be good to go after that.

Since the engine has such low mileage on it, I would recommend you changing the engine oil every 1000 miles.
Frequent oil changes mean a long life engine.
pg