grinding/scraping noise when I let off the gas

[Steve@OldSub.com]

I think a 1/4 turn is too much play in the rear. I'm not a differential expert but I'm guessing you have a rear axle problem.

That its tight when in gear suggest the transmission isn't the problem. Did you try turning the driveshaft from the rear while it was in gear? If its tight that would suggest the universals and hanger bearing are all okay.

Since you are seeing a 1/4 turn at the rear you should work to be sure exactly what is turning that far. Could it be the universal joint? Could the pinion nut be loose?

If the pinion shaft itself can turn a 1/4 with the wheels on the ground I'm going to say you need to rebuild or replace your rear.