Good to hear another TO20 is being resurrected. If you drop down to the Harry Ferguson forum you'll get lots of advice and help from people with tractors like yours.
Proper rear end oil level: level with the bottom bolt of the inspection plate on either side. So take that bolt out, let any any flow out. If low, fill slowly until it just starts to flow out.
What type oil: you'll get lots of answers. 90 wgt mineral oil many will say, although that can get quite thick in cold weather. Like many others, I use 15w40 in my TO30. That seems to flow OK at winter temps and still works fine in the summer. And, as one person said, same stuff in the front and the back makes it easy.
As far as the limited lifting: I'm not sure I understand the details. When there is no implement on will the lift operate as normal? If so, then you probably have some leakage somewhere. The best way to start is to pull off the inspection cover, try to raise an implement, and watch what happens inside. Depending where you see the oil shooting out (or swirling if below the oil level) will help direct you. NEVER put your hands inside while the engine is running. Just look.
If the lift doesn't work at all unless the tractor is moving, then I would have to ask if it is the motion or having the clutch out that matters. This lift only works when the PTO is turning.
If I misunderstood completely ask again and someone will understand better than I.
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