How are you installing the fork seals? Are you using the proper slide tool that slides over the tube and is used to knock the seals in place, with the fork tube assembled to the lowers? Hopefully you are not using a punch and hammer. Also have you made sure the seal lock rings are back in place after installing the seals? If they are not, the seals will push right back out. Also make sure the spacer is below the seal and all parts are in place. Make sure that the oil you are getting on the fender and engine is coming from the tube seals and not grease from the steering neck. If the oil is coming from under the tube covers then its got to be the seal(s). If its running over the tube covers then its the steering neck.

I have mine lowered 1 1/2" and since I am trying to keep the fender out of the triple tree and oil cooler. I run the oil higher in the tube than it was when I had the 1" drop H-D kit in. Have had no problems or leaks, just a little less travel and stiffer ride since I used some spacer on top the springs also.