OK, diff was rebuilt this weekend and driveline slop is gone, which has at least allowed me to feel what I suspect is worn rubbers somewhere in the rear suspension. oh well.

some points in case anyone is think of doing the same.

1) Find someone who has done this before
2) Don't try to do it on your own, you need 3 people if you don't have any jigs to hold the diff case still while you try to undo the bolts
3) Don't forget to buy a new case gasket when you buy the parts (doh!)
4) You will need a new diff pinion shaft, two plastic washers and probably the two thrust washers. the gears dont wear. Oh, and three new oil seals. May as well change the diff mounts while you're at it.
5) It will take at least one day.
6) Getting the diff and and off the car is best accomplished using a lift.
7) Don't forget to buy new oil when you buy the parts (double doh!)
8) You need a special tool to lock the diff in order to undo the bolts
9) You will need weirdly bent spanners
10) Your torque wrench won't fit
11) Read Point 1 again

Good luck.

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1987 300e manual 250,000 km (sold)