The rotor shaft inside the distributor has an o-ring. Evidently that has given out and you are getting oil into the distributor. Officially, Toyota doesn't sell that seal. However, do a search on this forum. There was an on-line retailer that sells a kit to rebuild it. I believe that you will need to drill out a pin and re-pin it so it isn't a kitchen table repair but it didn't look too complicated.
However, before attempting the seal make sure that the pick-up coils are functioning (the static tests that I mentioned) and that the coil is good. Be a shame to wait for the seal and then it not work after you rebuild it. I ran an oily distributor for several months. I don't recall it affecting the low RPM power.
From what I am reading I understand that when you use the aftermarket distributor you have good power but the engine will die on you unexpectedly (while you were moving, stationary, both?). Now, with a used Toyota distributor, it doesn't have any pickup but the engine no longer dies.
Are you using the same coil each time or two different coils? Are you using the same three wire harness or does each distributor have its own wires? If you have two complete distributors you might try swapping parts. I wouldn't change out the pickup coils until you have the specs to put them back.
Were both of these distributors designed for your engine? I can't tell for sure. If you are mixing 3SFE & 5sfe parts that could be the problem.
You may have more than one issue here.
I'm sorry Adobe would you mind interpreting "y should he d/l the gen3 3SFE with he has a Gen with 3SFE ?". You guys must be into texting. I just can't make sense of it.
Kep