Diagnosis
Yes, it's bad. The pump shaft seal has failed. Water has gotten into the oil chamber, and the milky oil is leaking out the sight glass.
How to Fix It
The pump needs a seal kit. For the AR383's AAA pump, you need the specific seal kit. You must disassemble the pump head, replace the shaft seals and O-rings, drain and refill with new pump oil (non-detergent SAE 30).
If That Didn't Work
If the leak returns quickly, the crankshaft bearing might be worn, allowing shaft wobble that ruins the new seal. That requires a full pump replacement.
Heads Up
Do not run it with leaking oil. Water inside the oil chamber causes rapid corrosion and will seize the pump entirely. Fix the seal immediately.