I changed the rear differential fluid on my '98 the other day. 127k on it, probably never been done before. Sadly, i don't think i got more than a soda can full of fluid out of the differential when i took the cover off. Burned jet black, but no major steel shavings or pieces. I cleaned it out, and refilled it using about 2.5 quarts of fluid.

Also dropped the trans pan, and changed the filter. Again, pretty sure the fluid had never been changed before, significant metal in the bottom of the pan.

When the vehicle is in Park, no wheels turn. I put the vehicle in Neutral (with the engine running) and the left rear starts spinning like it's in drive. Why? Is that normal? Further, i notice that the axle shaft (left rear) seems to wobble while its spinning. That can't be good.

So i put about 200 miles on the car bringing it back home. Everything is fine. I take it out for a trip around town the other night and i get a clunk from the left side. it sounded like the rear, but my wife sitting next to me thinks it came from the front. Before the night is over, i get a grinding sound from the left rear that slows the car down significantly. I stopped, got out to make sure i wasnt' dragging anything, get back in it and go, and no sound.

I'm now afraid to drive it and have limited resources to take it apart. Any ideas on what could be wrong? Like I said, i think it's coming from the rear end. The left rear axle concerns me.

I had the car up on blocks, so i ran it thru the gears including 4x4

 

You can check the integrity of the outer axle bearings with the truck up on jack stands in the rear. If you can move the wheel up and down, then the bearings are shot. If it does not move, but still wobbles, then the axle is likely bent or there is something wrong with the mounting surface. A bent axle or messed up mounting surface would result in a vibration while driving.

The level of gear lube in the rear diff should be a concern. It had to have gone somewhere.

Drag through the transmission when in neutral is normal. So long as you can stop the wheels (or driveshaft) by hand, it should not be a concern.

Metal in the bottom of the transmission pan is not a good sign. Hopefully it holds together for you.