Time for a new rack. PITA, just did it last summer.
You're right, it is a blown seal on the shaft inside the boot.
The two sides are connected by an air tube to allow air pressures to equalize when turning. Once you get the rack out (or have the replacement in hand), this will be pretty obvious once you know what to look for.
Replacement of the failed seal is not a viable option for a DIYer.
I supported the drivetrain with an overhead support and dropped the whole subframe when I did mine.
Steve
