If any of my brake pads have been contaminated with oil, I will replace them straight away, and give the rotors a very good clean with brake cleaner, even if it appears to be clean, there is residual oil left on the rotors that can reduce braking capacity.
When you flush the brake fluid, make sure that you do get fresh fluid free of air bubbles and contaminants coming out of the bleed nipple. Your rear brake sounds like there is an air pocket, so I'd try to keep bleeding it. What is the technique that you are using to bleed your brakes?
Sorry if I'm telling you to suck eggs, but sometimes someone has to ask the silly questions
