Confused here.

The seal presses into the diff housing. You should see the seal body plus the lip of the seal extending out of the housing. This lip will ride on the axle CV body to keep out dirt and debris.

In your photo, at the bottom of the hole the seal appears to have bulged up. This is not normal.

Did you drive the seal in to far?

Look at the installed differential seal in the photo below. The seal is pressed into the housing. The seal reduces the exposed hole size to that of the axle shaft.

http://hbassociates.us/Trailblazer_axle_seal_011.jpg