There could be something broken inside the transmission related to the output shaft, but the half shafts would be far less expensive and WAY more likely.
The grinding you're hearing is likely the transmission doing what it's supposed to do, but one of the splined drive shafts has pulled out and you're hearing them rub against each other. The grinding will continue for a few seconds after putting it in neutral because the rotating stuff in the transmission is coasting to a stop.
Look closely at the inner cv joints where they attach to the transmission. There's one on each side. Follow each drive shaft from the wheel to the transmission housing. Look for signs of fluid leakage too.
Monday, March 15th, 2010 AT 5:09 PM