The o-rings people are taking out, have nothing to do with sealing the diff case, I assure you. There are only two o-rings associated with sealing the case, as well as a main large gasket/o-ring. (its a gasket on kyosho, I'm pretty sure its a gasket on mugen too) The sealers are the rings on the ends of the diff that the two output shafts go through.
These o-rings on the bevel shafts (?) are 'just there' for some pathetic reason. Like I said, people are using them as a tuning option. Every racer i've talked to so far, runs 0 of the 4 o-rings in their diffs, so thats what I'd be doing. I'll let an X5 guy take over the fine details, I don't own one.