I have a coolster engine oil leak that i was looking for input on before i went too far on trying to fix. I apologize as I am not a complete engine nut, so I don't know all the correct part names of the engine. I have attached two images of a case house that I took off as the engine oil was leaking from this compartment. I removed the housing and you can see oil within the bottom as well as oil coated all on the internal parts. What is not clear to me is if oil should even be in this area and if not, where could it be coming from?

There appears to be some electrical coil mechanism as part of this and I did not want to try and start the engine (if it would even start with the main housing off) and see if I can determine where the oil is coming from that is leaking into this housing. My best estimate is that oil is not suppose to be in hear as even though the housing had what looked like a hard plastic gasket, there was one corner of the house that had a square notch at the bottom where I know the gasket would not prevent oil from leaking off it it was designed to keep in oil. My assumption is that the notch is provided to allow oil or other to leak out. So my questions are:

1) Should there really be any oil in this compartment?

2) If not, have people had similar issues to indicate where the oil leak was coming from?

3) If the case housing as shown is completely removed, does it harm the engine to try and start it and will it start with it off? I am asking as if I have an oil leak somewhere, it would be easier to have the engine running and then look to see where the oil is coming from.

4) Any thoughts on how to best further trouble shoot?