I've had this on other cars where the power steering fluid gets low and you get air through the pump and rack. Sounds like you may have located your issue, but steering is always the first place I look.

Good luck -- let us know how it shakes out.

Cheers, John

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'98 E300TD (W210) | Sold 6/09 with 205k and counting
'04 VW Touareg V10TDI