The pilot bushing is sintered, a process that makes the material quite porous. The reason it's porous is so that it can trap lubricant inside itself. Grease won't flow into the pores, but oil will. Thus oil is meant to be used on the pilot bushing.
This I was told by a good friend of mine who has 30 years of experience repairing cars.
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Engine oil belongs in the block and INSIDE the tranny.
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For the sake of the any newbs reading this thread, I feel the need to point out this statement. Engine oil in engine, gear oil in tranny.