1989Pre 

I just re-packed it, and it's binding tight when I tighten the locknut (I'm working from the drive-side. I think I have part #10 in this exploded diagram, Right Hand Seal Ring in the wrong position. One problem is that the diagram shows this part facing outward, and I am almost certain that it faced inward (with the seal toward the hub), when I took it out. Another thing is that the diagram does not show the two rings that go inside this seal, one metal ring with a rubber ring within. The rubber ring is different on both sides, and therefore, can be installed two different ways.

FBinNY 

Generally seals of this type are installed lip side out so any outside pressure would tend to tighten the seal.

On that hub, they should be mirrored with the lips both facing away from the freehub body.

BTW, don't forget to apply a grease film to the back one to avoid dry friction.

Arrowana

Some pictures of what you actually have would help. The diagram certainly has it right on what it is supposed to look like, including the orientation of the seal.

When you tighten the locknut, are you using one wrench on the locknut and another wrench on the cone at the same time? If not, only tightening the locknut will cause the whole hub to tighten up, and this is true for any cup and cone hub. Best practice with a freehub is to lock the driveside cone and locknut against each other, then do all of the adjustment on the non-driveside, as some freehub bodies will obscure the driveside wrench flats for the cone when properly adjusted.

Freehub seals can be difficult to get into proper position without mangling them. If you have ruined yours, the easiest fix would be to get a new freehub body that already has the seal installed, and to leave the seal in place when overhauling the hub in the future.

KCT1986

You mention M525 but have the link to the M525-A, the 2 versions have different cone/cone seal setups.

The version # should be printed on the hub shell in the center of the barrel under the Shimano print.

With the M525-A, the part #10 should have the inner lip facing outwards. The cone/seal unit should interface with it in that position.

1989Pre 

That did it, all right..! Thank you very much. I had thought that by adjusting the cone properly on the drive-side and setting it, I'd be all right. Non-drive side from now on! I'm not too familiar with working on cassette hubs.

1989Pre 

Thanks. I didn't know that. I got it squared-away. The seals were in the right position. I was just tightening the bearings/cones from the wrong side.

1989Pre 

They are curious, because they are not sealed nor protected on their open side. Facing away from the freehub body, they meet up with the washer under the locknut, the metal back of the seal.resting against the cone. I don't see how this can be effective.

FBinNY 

You're expecting too much. They're not intended to totally prevent water entry. Just to improve resistance to dirt and water spray.