When I pulled off the gear cover, the result was not pretty. It's almost as if the pinion had eaten into the spur gear!

I admit that I did not check/adjust the pinion/spur mesh before we took the car out, because I assumed that "ready to run" meant, well, "ready to run."
So, it goes without saying that we're gonna need to get a new spur gear now (the boy is less than happy about this). What I'm more concerned about is why this happened. Would a pinion that was meshed too tightly do this, or is there something else that I need to investigate?