The shaft in my turbo feels loose. How much freeplay should I have? 
 While this specification does vary from one brand to another and 
rule of thumb is less than .030" radial freeplay and less that .002" axial freeplay. 
This amount of freeplay is required to allow the bearings to "float" in a 
pressurized film of oil while the engine is running. The flow of oil through 
the clearance around the bearings is what helps the bearings stay cool. 
This oil film around the bearings also help dampen vibrations that occur
 to the rotating assembly as it moves through it range of RPM. Ball bearing
 turbochargers do not have this pressurized film of oil around the bearings; 
this is why they are somewhat more noisy than floating journal bearing turbos. 
 
 
 My tubo is smoking and it's brand new. The shaft has normal play in it so
 is one of my seals blown?  The term "blown seal" is widely used to describe
 a turbo that has oil coming out of it. In reality a turbocharger seal cannot 
become damaged until the freeplay of the shaft has increased to the point 
where the blades of the turbocharger have been rubbing against the housings.
 Blade contact usually requires more than .035" of side to side movement of the
 shaft. In some cases it is even possible to rub the blades and still not damage
 the seals. If the turbo is new and the shaft isn't loose and bouncing off the 
housings, but oil is coming out of it chances are you can correct the problem 
without even taking the turbo back off the car. 

The seals within the turbo are not meant to hold back a bearing housing that 
has become full of oil. They are designed to sling the oil mist and spray within 
the bearing housing away from the point where the shaft comes out each end.
 If the bearing housing becomes full of oil it will ooze out past even brand new
 seal rings. 

The oil should freely drain out of the bearing housing as quickly as the engine 
supplies it. This is why the drain tube is so much larger than the supply tube. 
Gravity is the only force moving the oil out of the turbocharger. Any slight 
restriction in the oil drain tube, even a small silicone dingle berry, can slightly 
impede the draining of the oil and cause oil to back up into the bearing housing. 

The crankcase vents are the second largest cause of oil loss from a good 
condition turbocharger. The seals in the turbocharger were designed with
 expectation that the pressure inside the compressor and turbine housing
 will always be greater than the pressure in the bearing housing. If this is
 ever not the case then oil will come out pass the seals. A restricted crankcase
 vent will cause this to happen. If the amount of ring blowby exceeds the ability 
of the crank vents to release the pressure positive pressure will build within
 the crankcase. This pressure within the crankcase can exceed the pressure
 inside the compressor and turbine housings under some operating conditions 
resulting in oil being driven pass the seals by the improperly biased pressure 
gradient across the seal rings. In severe cases it may be necessary to introduce 
vacuum pumps to deal with crankcase pressure, but these would be very severe
 high boost applications where even low percentages of blowby produce a high
 volume of crankcase vent flow.  

this is "via" forced performance's FAQ site