you should be fine to weld it with the oil in the housing.
just be sure to get all the nasty factory paint/coating whatever the heck it is off.
the housing is only about 1/8" thick. so don't get to carried away and burn a hole in it. i also weld them uphill. for the tabs on the top of the axle i start on the side and go to the top. on the bottom tabs i start on the bottom and go to the side. but i've seen lots of people weld em down and they seem to hold fine so it's up to you lol.