I have a 97 too
I have a 97 too, i got it for a hundred bucks, but it had blew a seal and the guy kept riding it and well you know the deal. You can push it and it makes a knocking noise. I feel ya on the $500 diffs on ebay, theres no way i am putting that kinda money into a used rear end and it could have been done the same way . I think i am gonna buy a ring and pinion for $279 and a bearing kit from ebay , i am not 100% but i am thinking about it still.
good luck , keep me posted.
I will be running amsoil gear lube in mine when ever i do get the thing fixed.