The grinding is when going into park. From research one theory is that this is caused as the output shafts are still spinning and the parking locking mechanism fails to engage. On an e39 there was one forum post where this occurred due to an axle popping out of the diff. Could be similar to a failed front driveshaft perhaps?

Will get a few hours to debug tomorrow, then its on blocks for a week as I am out of town. Thanks for all the comments so far, will keep posted, really appreciate this community!

Thanks