[njsteve]

The machine shop called me today. He pulled apart the diff and found that pinion bearing race had some marks in it.

He asked if I used synthetic diff fluid and I said yes.
He then asked if the car sat a long time without driving. I said yes.
He said that was the problem.

In his decades of experience, synthetic differential fluids don't have a good fluid film thickness for long term storage like traditional fluids have. He said the races got abrasions from lack of lubrication and the rollers basically made corrosion divots in the races. He also said the synthetic diff fluids seem to attract moisture more than traditional fluids. That would explain the test results showing the presence of water in the fluid.

So he will replace all the bearings and seals and set the existing 3.54 gears back up. (which he said were fine and just need the depth adjusted a little.)