I have a Polaris Express 300 2 stroke. Finally got the engine running smooth with everything tweaked correctly on the carburetor.

I have now moved on to shifting the gears.
I have had this atv for a long time and high gear was always a pain in the *** to get to go into gear, reverse was okay and low was best.
You could always feel low go into gear.
A couple of months ago the spark plug cap went bad while I was trying to figure out the issue with shifting into high. At this time I put fresh gear oil in and never drained the old because it literally looked empty.
Fast forward to a couple of days ago. I finally got everything running but shifting into low you cant really hear grinding gears but it doesn't jerk like it used to when shifting into low and half the time it wouldn't shift fully.
Reverse would move but completely grinding, and high of course is still the pain in the ***.
All 3 gears when shifting into clicks like it got a good shift, not a click on the gears or anything, just a normal click that your in gear so I know I am not loose on the shifter rods.
I checked the gear oil and it was sort of milky, like barely and had bubbles. This means water is in it so i am going to drain the gear oil today.
What I am wondering is could the bad gear oil be the reason the gears aren't going in fully? I highly doubt it because of the symptoms with some gears grinding and others not going into gear at all like high.
Just need to know what the causes could possibly be.

Thanks!