Half shaft or diff. Find the oil leak -- may be the boot going, which usually means the joint is flogging in it.

Try tightening the retainer bolt in the hub, too -- it is possible for the axle to move and thump, leaving you with only a boot repair.

Peter

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1972 220D ?? miles
1988 300E 200,012
1987 300D Turbo killed 9/25/07, 275,000 miles
1985 Volvo 740 GLE Turobodiesel 218,000
1972 280 SE 4.5 165, 000 - It runs!