Looks to me that the input spline spent a fair amount of time under water. I'd be curious what the inside of the final drive looked like.
I can see how it looks like that, but look beyond the circlip and you'll see the damage doesn't extend down there. If you look at the other pic, you'll notice the oil that's seeped through the bearings isn't ghastly at all, neither was the oil I removed the last time I changed the oil. On turning the pinion shaft, everything feels smooth, with no play between the pinion shaft and the toothed gear that engages the wheel.
The reddish look on the splines is not rust, but the remnants of red tacky grease, the wear a battering are real enough though. I don't really understand how water gets in the swing arm, the rubber boot was all good and well secured, but the carrier bearing obviously had some moisture in there, to disintegrate it into rusty bits.
I've had the bike 9 years and confess, this is the first time I've ever removed the swing arm.
The grease, of which looked like it'd once been plentiful had dried out and become crumbly, a bit like a dryish red clay.
I suspect, as per the comments made above by Jackson, that in the past the bike has had some sort of issue in the carrier bearing, which apparently causes sloppiness particularly on the pinion shaft. . . . At least that's how my brain calculates it, I may be wrong of course, it could have been wear over time under harsh conditions. I can't for the life of me think that these splines could have ever been completely submerged in water as you suggest. I can't see how that could even be a possibility?
I often use the bike in winter, and it lives outdoors, but I still can't see how water would get in there, as I said, it's well sealed up. I've heard it mentioned that condensation can be an issue in the swing arm too, but I can't imagine it being enough to submerge the pinion shaft, and the spline coupler is, comparatively speaking, in a lot better shape.
If I am somehow getting water into the swing arm housing of the driveshaft, I could certainly do with figuring out why, but having said that, I will be pulling my swing arm and inspect the uj/drive train in the annual yearly basis from now on
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Really nice looking Guzzi, (CONGRATS!!) Love that tail bag, also! Who needs saddlebags? You can easily travel for a week with that set up!! 
