Okay I've read through the original posting and the replies and I'm surprised that nobody questioned just how your "diffs filled back up with muck". I really doubt that water/muck could leak into the diffs via the breathers. The hoses are really small and the actual breathers are placed pretty high up on the vehicle. I suspect that the water/muck is entering the diffs via the axle seals. And if water/muck can get in diff oil can get out. Do you see any oily patches beneath your parked Libby?
I'm not a fan of deep water crossings even in my Libby. The door seals don't work all that well, just ask around. Once while stuck in a big puddle waiting for a tug/tow I had water leaking in the passenger side door.
Backwards facing snorkels are great if you like to splash your way through water (fender flares optional LOL).
I plan to put bathtub plugs in the floor pans of my YJ. I've flooded it more times than I can remember.
You can make your Jeep water resistant but I doubt you make it watertight. You would need a snorkel, raise all the breathers (i.e.: transfer case, transmission & diffs) seal the dipstick tubes & distributor and replace the clutch fan with an electric cooling fan. Maybe a periscope would be a good idea too (LOL).
This guys could have used one...
http://www.youtube.com/watch?v=E5Tsz_SMF5I
actually I think the driver could have used a snorkel too