My Two Cents
Valve cover and distributor both were leaking on my 96 Camry Sedan 5S-FE (4 cyl).
I installed new Cardone Select 8474427 distributor for about $187 from Rock Auto in December 2014. I replaced valve cover gasket and spark plug tube nut seals at same time. Car has never leaked oil since; runs perfectly.
You ask good questions, which I will attempt to answer. Here are my opinionated comments:
I used a Haynes Repair Manual and the forum to develop step-by-step guide to make this repair. Before undertaking this repair, make sure you have access to Haynes or Toyota service manuals. With these documents in hand, yes you can make this repair.
Yes, there is an internal o-ring and an external o-ring that can leak. An external o-ring comes with a new distributor. Buying a new or re-manufactured unit means not having to deal with an internal o-ring repair. I personally only buy new and depending on what it is I sometimes only buy Toyota OEM parts. Repairing distributors is uncommon for most, in case you don't know that. And yes, typically oil inside the cap means the internal o-ring is leaking.
My repair was way, way more involved than the MR2 video. Here’s why: First off, I removed spark plugs, turned crankshaft to set engine at TDC (removed front left tire to get at crank) prior to pulling distributor, removed valve cover, and also removed air intake box and hoses/wires to move them completely out of my way – to make access to distributor and top of engine easy. I did all this in part because I spent time on making sure I stopped all oil leaks from valve cover area.
I spent serious time and effort cleaning the valve cover head mating areas (including the half moons) since this is a common area to leak oil on the 5S-FE. I would not replace a distributor without doing a proper reseal on the valve cover because it may be hard to identify where oil is leaking from if you continue to have leaks. I think it is best to clean it all up and then closely watch for leaks after this repair.
To be honest, installing the replacement distributor with the valve cover off makes it a trivial effort, since you can plainly see where the distributor shaft is to mate up with the camshaft slot (and assuming you know how to align distributor with engine at TDC). So, think about whether you want to make this real easy on yourself. Clearly not a mandatory step (valve cover off), but sure makes it easy to quickly install distributor if you're new around engines.
I took two full days to make this repair. Here’s why: The valve cover has four mating areas, plus the half moons assuming you remove them, which require Permatex sealant (most others would likely use Toyota FIPG instead of Permatex). Permatex needs time to set up, which most mechanics ignore because they are time constrained. I let the Permatex setup for four hours after application, then gently set the valve cover into position on the head during the overnight hours, then waited until the next morning to torque the tube nuts to 10 pounds, then at the 24 hour mark (late in day) I did the final torque to 17 lbs. I used red, high temp Permatex. Not a single drop of oil has leaked since this repair in 2014. (I’m guessing not everyone does things my way.)
Also, it is important to check the torque on the tube nuts a couple of weeks after this repair, as the new valve cover gasket may have compressed a little. I faithfully check the torque on these tube nuts every six months.
Hope this helps.