Tim,
I had the engine out of my S3 recently to fix the rear core plug and despite having the drain plug out there was still a heap of sludgy oily water in the bell housing stuck in the slave cylinder well. The wading plug is a temporary plug that should be out for normal use and only fitted when you go for a bit of a dip, so if it was fitted it looks like you've been collecting sludge over a few years. Chances are the slave housing will have a bit more sludge in it which will have had a detrimental effect on the clutch slave and seals, so replacement, given the cheap price of a new one has got to be a good idea.
Doubt the sludge was entirely hydraulic fluid as the clutch reservoir capacity is pretty small, its probably a collection of a bit of everything, mostly water, collected over the years since the last clutch change.
On mine it looked like the slave cylinder housing was pretty much the lowest point in the bell housing (Blinding bit of Leyland design work there!) so dropping out the old slave should drain out the last of the sludge. Don't know if anyone else could suggest a good way of doing this without affecting the clutch but a gentle rinse out would probably pay dividends, de-greaser sprayed in and a rinse with fresh water perhaps??
As for re fitting the new slave, check the fluid line unions first, there is a good chance the thread in the new slave is a different size to the old one, bad time to find out when its all offered up and ready to go. Also when you bleed the slave stick the front wheels up on ramps, i couldn't get the system clear of air on the level and this did the trick (Top advice i found on here, thanks AULRO!)
ian


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