If you had a front wheel lifted and the car was in neutral - then the behaviour you saw is expected - but the front wheel should turn as well.
If 3 wheels were touching the ground or the gearbox was not in neutral, then the IRD is not driving the back axle.
I would be surprised if it had just broke and you got that behaviour though. When they go it is because bearings have worn down and the gears separate and slip - in my case each slip resulted in a big BANG as if someone had hit the car with a big hammer. It is also the power in the engine fighting against wind up that makes them slip - that is a lot more power than you would have put into turning the brake drum - I would have expected it to have not rotated. I might be wrong and the bearings have completely shattered or the case has broken - have you examined the case or seen oil dropped?
If my thoughts are correct, you may find that the IRD has never driven the back wheels in your ownership - ie the IRD has previously been converted to 2WD.
I think you still need to identify where the sound is coming from - whether it is the IRD or something else. It would be pointless to replace the IRD if the fault is else where - except of course that you would end up with 4WD again - but I can almost guarantee that you will need a reconditioned VCU as well - and if your tyres are no all the same make and model, you'll need to buy some of them as well - then hope the rear diff is in decent condition.
I would get under the car and have a good external examination of the IRD - make sure it is not cracked. I'd then remove the prop shafts. With the prop shafts removed, double check that the rear pinion on the IRD will turn by hand with the car in gear and any raised wheels do not turn. I'd then loosen the IRD fill plug, then drain the IRD oil, keep the oil, cos you may want to put it back in depending on what you find. If the oil has metallic particles in it, maybe looks grey - then the bearings (and IRD) are toast. I'd then remove the rear pinion from the IRD. See if it has a crown gear on the inside and a pinion gear in the housing that it mates 2. If either of these are missing, then the IRD has been converted to 2WD and if the oil looks OK, then I'd say your noise is coming from else where - you could put the rear pinion back on and fill with oil and see what difference it makes attempting to drive the car without the props. You could lift each corner in turn (with car in neutral) and spin each wheel to see if there's any noise from that - would home in on the problem - if it is the rear, its definitely not the IRD.
While you are under the car - have a good examination of the drive shaft (cam belt end of engine) where it fits into the IRD. The bearing that supports it in the IRD is another thing that can cause problems, make sure it fells tight.
With the rears lifted, you could remove the wheel and drum to examine the brakes to see what might be causing the problems with them.
If the IRD is 2WD and you want to put it back to 4WD, you are looking at a recon unit from a reputable supplier (like Bell engineering) if you want something you can rely on - they are about £650 I believe - but as I say, you'll be looking at a VCU as well, which will push your bill up to about £1K.
If you're handy with the tools, or know someone that is, you can buy rebuild kits for IRDs for about £150 that have bearings seals and a cooler to rebuild them with - but if your crown and pinion gears are damaged, then a recon unit is the only real option.
These are some thoughts. I've probably missed or not aware of other options/problems/things to check.
