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And if so, what happens?

Ive been reading posts by Linden, etc, talking about lack of oil in the gear box causing failure. Can too much oil cause the same?

As i understand - and please correct me if i'm wrong - proper level is achieved by removing the top fill bolt and the one at the end of the breather tube. Fill oil into the top hole until it comes out of the breathert tube.

Now i've thought Ive done it correctly a few times, but every time i open the breather tube, lots of oil comes out indicating the level is too high. Is this normal?

If you've opened the check tube first, chances are you might have some pressure inside the case blowing the oil out the tube. I think you would have to open the fill hole to relieve this pressure.

I'm not sure what troubles too high of a level would cause.

To much oil will cause the seals to fail sooner. Just like my bet most hub seal failures are from the improper oil or over filling

My only experience with a over filled differential/gear box wasn't Pinzgauer related but what did happen was the seals blew out.