Keith,
First off, your leakage may be partially due to a clogged pipe. The MT125 pipe is super-restrictive even when new, and clogs up real quick (I'm using a gutted one on my MR175, I've seen it inside). If it were me, I'd connect a shop vac to the input flange and see what happens; you may get lucky and it will flow sort of OK afterwards. If you have any doubts, pop off the cleaning cover on the bottom of the pipe just ahead of the stinger - if the motor runs stronger (it will definitely be way louder), the spark arrestor's probably clogged. If the pipe's plugged up, the following repairs will only allow the oil to stay in the pipe instead of draining out.
The MT125 and MR175 share the same exhaust manifold, so I've had to become familiar with that too. By today's standards it's horrible, but it was actually fairly good for the 70's.
The 18352-361-000 gasket is a semi-soft (asbestos?) ring seal that fits into a recess on the forward edge of the exhaust manifold, and seats against the pipe/flange joint about 1.5" into the pipe end. As this area usually has weld bead and other crap, sealing is generally poor unless the joint area is ground down smooth, which is what I do.
There's also a piston-ring type secondary seal on the manifold, which works poorly at first but eventually clogs up with carbon enough to seal OK, usually just about the time the pipe needs to be removed.
There's also the copper manifold/cylinder gasket, which works fine if a new gasket and hi-temp sealant are used.Look inside the pipe end and see if the ring gasket is still inside; usually it is, as it carbon-welds to the pipe pretty quickly. If it looks good, I'd just leave it for now. If you clean everything up well - pipe flange, manifold, piston ring, etc. - you can try reassembling everything with hi-temp sealant and strong springs (the OEM ones are OK when new but pretty expensive; the 83mm Helix stainless exhaust springs 53-0633 are a lot stronger, although one of mine came apart).
If this leaks, there's a Kawasaki O-ring (P/N 671E2535) that replaces the piston ring and will seal very well. It's a VERY tight fit, and you'll have to clean, lube, and heat everything to get the pipe on.
Probably too much info - sorry.
Ray