My 2001 S2K recently started making a strange clunking noise coming from the rear of the car. It can be heard through all gears (including reverse) and the clunking increases as the speed increases. I initially thought it was just a bad tie-rod or something not torqued down properly until I did more research. The S2K in this video is making the exact sound mine was:

http://www.youtube.com/watch?v=M2C_gnerC3k

I was running late for work and being the young stubborn kid I am, I punched it to 9k. The gas pedal dropped to the floor and the clunking was suddenly much much louder. I had enough momentum to get to work but on the way home it completely s*** the bed and left me on the side of the road.

After hearing what blown s2k diffs sound like I feel that I need to replace my differential but a friend who's a more knowledgeable mechanic than me thinks its my tranny. When I pushed it home I didn't hear the clunking, as I only hear it when the car is in gear and I'm giving it gas.

Any ideas of what my next step should be? such as diagnosing the problem.

 

Remove rear differential, Inspect. Very straight forward, it sounds like you busted the ring/pinion up.