paging small engine experts this JONG needs help

It finally started snowing the other day and I bought a new to me snowblower over the summer that I was anxious to try out. Ran it once yesterday with no problems in about 6 inches of snow. Today I woke up to about a foot new snow, started running it everything was going fine, then one of my roommates took over. Trying to get the heavy dirty slop that the plows throw up it stopped working. He says he here like a bang or snap when going through a heavy pile the auger stopped spinning the engine was still running and a bunch of greyish black fluid started leaking out of the snowblower.

This really sucks because I bought this with my money expecting my roomates to chip in for their share of the snowblower but now that it is broken there is a good chance I could get fucked over.

What could be the cause of this problem? like i said the engine still ran after the break, Its not oil that leaked because the oil levels are still fine.

How serious is this problem and is is something I can fix myself or how much is it gonna run at a small engine shop?

the snowblower is a toro 2-stage with pull and electric start

I'm not sure about the grayish black fluid, but lots of spinning things (boat props, snowblower augers, etc) have shear pins. the idea is if an unexpected thing should stop the spinning thing from spinning, the pin will break instead of the spinning thing.

should be cheap and easy to fix.

sounds like a likely culprit i'll check it out

Sounds like a warrenty item. Time to take it back. Your snowblower probably has a gearbox which is broken and leaking oil. Not that I know anything about snowblowers.

The auger has shear bolts, one on each side usually. That is surely the problem. Your local Sears has em cheap. DO NOT - I repeat DO NOT use regular bolts. Shear bolts are made to snap easy to prevent damage to the engine/transmission. Snapped one in the last storm myself.
http://zacm.com/snowblower/images/PICT0006sml.jpg

Sounds like the shears to me as well. Watch out for the old buried newspaper, it'll get you every time.