It is in fact rear trailing arm (control arm) bushing failure. I put the rear wheels in the air and can shift the passenger trailing arm about 1/8" (maybe slightly less) with just my arm strength.
This is also the slightly bent control arm so the whole thing will be dropped and replaced with a replacement arm and bushings.
Bummer since I recently had the rear struts out for replacement and now have to take it all apart again.

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1984 w123 300D anthracite (bought from fellow forum user rwthomas1, now approaching 300k and doing great)
1985 w123 300TD white (probably also from another forum member, ebay purchase, my problem child)