[Justen]

Oil seals (at least the rubber o-rings) usually just crap out and disintegrate after years of heat soaking i believe. That's what happened to mine. My turbo2 smoked like a chimney on startup. When I took it apart to rebuild it, the motor and housings were okay, and even the metal oil seals, but the rubber o-rings in the oil seals weren't even there anymore. I don't think the pellet was stuck in my motor because the bearings seemed fine as well. The same thing could have happened to your motor.

As far as the thermal pellet goes, I have heard of them failing before... replaced mine with a solid pellet from Atkins that allows oil to flow through at all times and won't close at all.

If your current motor was a rebuild, the thermal pellet may have been replaced with the same thing. Was it a stock-swap or rebuild?