from the looks of the picture, it was already ripped and had slung it out while you have been driving it.

If you decide to replace the whole axle, be careful when you pop it out of the transmission, you dont want to ruin the output shaft seal. The most common thing to happen is the spring on the seal, which is on the inside, will pop off and you wont be able to get it back on. A new seal is like 10 bucks though but they are a pain to get out and put back in.