Your steering rack. Once it starts leaking into the boots like that, it's over.
Sorry, that's how it works. I imagine that you might be able to rebuild the rack with a seal kit, but it would be a lot easier to just buy and install a new rack.
'86 325es (TURTL3): PJ peetsa hawler
'87 535is (BADWATER): almost done... really.
'86 325e (GRN HLL): DD/show/rocket
'04 x3 3.0i: Wife's Bimmer (manual, woot!) My BMW Blog