I can't see what the problem is, from the picture. But, if the foam is missing, or breaking up, just go buy a new one. Much cheaper than a new engine!

Foam comes in two styles, closed cell and open cell. With closed cell you connot get air to pass through. With open cell air will pass through. Open cell foam MAY restrict the air flow. Go out and buy the correct foam for the filter, wour motor will love you for it.

OK sorry I was talking about this problem and found the answer about half way down.

side note- The plastic covers dont seal or bend over time and dust goes into motor.

http://forums2.gardenweb.com/forums/load/tractor/msg041330153268.html

Look like your mowing in dusty conditions by the dust residue I see around the engine bay. I would also change the oil about every 6 weeks, you can probably get away with leaving the filter on, the idea IMO is delute the dirt particles (microsocpic)from the oil so the filter don't have to work so hard. I consider your conditions "Extreme" therefore you manual usually states the change oil and check filters more often. If you have a failure the manufacture will probably say you didn't service it enough?