Trover Ok the ASD light has not come on yet If there was a partial lock problem wouldn't the light come on? Also wouldn't I hear the same clunking regardless of turn direction? I'll check the fuse to make sure I am not getting false info.

A bearing or carrier bearing was my initial thought also. There are no leaks and the shafts look very good. When I had the car up I took the time to do a diff fluid change just for the heck of it, I was hoping it would somehow help the noise. It didn't, it came back a few days later.

Craig you are right there is nothing more annoying than a sound like this that comes and goes. But when you hear this it feels like you are going to see one of your rear tires fly past you when you stop When something goes wrong in the rear of a W124 it echos through the interior. Is the bearing you are talking about at the wheel or towards the diff. Is it just a regular wheel bearing?

Thanks for the offer on the diff Craig, appreciate it, but I'd like to stick with the ASD if I can. It rocks in winter. But until I isolate this thing I have no clue how to proceed.