Thanks for all the helpful replies. I'm impressed by the amount of expertise and knowledge exhibited here.
Mariush: a protection diode from output to input makes sense. In looking at the datasheet again, I see a few cautions to protect again reverse biasing output wrt input.
T3sl4co1l: the transformer has three secondaries. One is for an unregulated 9V regulated 5V circuit, the second (this circuit) is for unregulated 18V regulated 12V, and the third is for unregulated 4.5-4.9VDC which drives the LED display and where one can toggle two different levels of brightness. There is no other circuit sharing this secondary. The tranformer is a conventional one, not torriodal. I didn't know about the existence of TVS diodes, the SMCJ18A is a great way to stop transients. Response time is picoseconds, quite amazing.
bdunham7: Yes, I've already replaced the regulator, and I think it probably will last another 40 years, see below.
TheMG: Regarding thermal cycling, see the failure mode below.
bobbydazzler: output cap is 5.6uF in parallel with lots of little bypass ones.
Bud: these DROs work extremely well, and I expect that lots of them (and the machine tools that they are attached to) will still be around and working when we are gone.
David Hess: I did what you suggested. I made a mounting post, put the transistor on the lathe, and carefully turned off the top. Then took some photos with a USB microscope which I bought for one of my kids a few years ago. See photos below. You can see that a corner of the chip (attached to the input pin) has cracked. I am fairly confident that this did not happen when I removed the top of the TO-3.
amyk: I saw your comment too late to take advantage of it. But it only took an hour to make the mounting post, turn off the top, and take photos. Will be quicker next time (:-).
Comments welcome, about why the chip failed like this.
PS: I am following the instructions to embed photos, but it doesn't seem to work. What am I doing wrong? Photos can be seen below, but I wanted to embed them larger and with text around them.
Cheers,
Bruce
Here I am making the mounting fixture


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Here it is in the lathe, getting ready to remove the top

Pictures of the 7812 chip. Broken corner is by the input wire



