I do not know the technical reason to why it should not be used. I bought Motorcraft Mercon V maybe 15 years ago and it said "Do not use in transfer case" on the label. That is all the why I need.
The manual called for Mercon on both. Where did you see it calling for Mercon V in the transfer case? Ignore that source of information forever since Mercon V is specifically prohibited in t-cases.
As for "best", probably a TES-295 or 668.
The special tool is the air compressor. Small piece of wood between the piston and caliper body to stop it. I have done it several times. No more dangerous than most things car related.
10w, 15w, or any number in front of the W(winter rating) does not indicate the viscosity or thickness. It only means the lowest temperature rating you should start the engine at. The grade (number after the W) indicates thickness.
Where is this info coming from? Never heard of Extreme 5w-40. The 1300 and Extreme are still on the US site.
https://www.mobil.com/en/lubricants/about-us/mobil-delvac
Why not just fix the problem? Where is it leaking; valves or rings? This is one of the simplest engines to repair. Zero percent chance the rebuild will go 250k.
Op asked if it is ok to use MMO. Donald refered to a test that resulted in MMO making the fuel worse. Some relevant data versus the rest of us giving opinions.