If it's that loose, a gentle blast from an air gun will do it and you won't have to deal with cleaning up all of that grease; just point it into a corner or something as they can pop out pretty forcefully...
That slot that the seal sits in is basically square-bottomed. There's a groove that runs down the middle of the slot that must be cleaned out as well; take a small screwdriver or other metal implement and make sure that slot and groove are clean, clean, clean.
There are a several things that happen with this seal. First off, debris can get under it, build up, and cause the seal to squeeze the piston so tightly it cannot move. Second, that seal flexes and is an important component in retraction of the moving pad, so crud that makes its way into the slot can freeze the seal up so that it can't flex. Both of these scenarios will lock up the piston. In addition, the seal itself can harden with age and use and not grab the piston correctly, allowing the piston to over-extend itself so that it drags on the rotor. Lots of folks use their old seals but, really, they're cheap and there's no real reason not to replace it when you can, IMHO.
The piston needs to be lubed to work properly, and to ease insertion during installation. Some use brake fluid to grease it up, but that's not recommended. Instead, a thin coating of Dow Corning High Vacuum Grease should be applied to the piston when inserting it into the seal. This stuff is very easy to find on the 'net, which is where I got mine. Highly recommended repeatedly on this site by some real authorities.
Make sure the return fluid port in the MC is clear, as I mentioned in an earlier post. It runs right around .017"- .018" in diameter (just a hair under half a millimeter), so it's amazing it doesn't clog up more often than it does. If it's plugged, high-pressure fluid from the caliper can't return to the reservoir after braking, so the piston is unable to retract, leaving the pads clinched on the rotor.
Next, check that the hose running from the MC to the 3-way joint isn't excessively long and runs in as straight and direct a route from Mc to joint as is possible with no loops, twists or kinks that can either stem fluid flow or trap air in the system.
Once everything is clean and shiny, start your installation by setting the gap between fixed pad and rotor (as outlined above) before you attempt to bleed the brakes, as this setting determines the extent of piston travel. Two Tired has an exemplary write-up covering brake bleeding in the FAQ section of this site that is well worth reading and following for a professional brake servicing procedure.
Good luck!