DOT4 and paint? WTF were they thinking? That's crazy! No wonder it leaks!
I note my older Shimano Deore ones use mineral oil which wouldn't cause same problem - although Avid seals will be specced for DOT4.
Why the hell does it need DOT4! It doesn't get up to 1000deg C FFS!
I'm going to have a go with the prescribed wet n dry 600 grit + piece of glass and put it back together and see - but sounds like seal/bladder is kaput.
Of course you can't buy that on its own, you need to buy whole seal kit for a tenner
I feel a strongly worded letter to Avid coming on...
'kin good kit (Charley M)