When the IRD 'goes' its because of too much stress is going through it due to the VCU not slipping sufficiently - either due to the fluid in the VCU becoming too viscous or axle rotation speed due to different size tyres (different tyres, excessively worn tyres or incoreect pressure). What ever the cause, its like a 4wd driving in diff-lock on solid ground and puts too much force on the IRD. Initially, thee bearings will get ground down, then once there is slack on the shafts and the gears do not mate properly, teeth break off.
At this point, there will be n awful lot of horrible metalic crunching/banging noises coming from the IRD - and it will be obvious something's catastrophically wrong.
Most of the problems in the IRD will be related to the crown/pinion gears that feed torque to the rear props. Removing the props instantly relieves stress on these components - so with the crown/pinion gears 'floating' things sounds like they're back to normal - however if you pay attention and listen, you should still hear that that something's not right - there will probably be some quieter knocking/rumbling noises.
The crown/pinion gears will presumably have the possibility of jamming, similarly there will be metal fragments in the oil which could also jam the front diff gears. If the gears jam, the front wheels will lockup putting huge stresses through the gearbox/engine as it stalls - I image that these instances are also where the IRD casings fracture and can not be used on exchange with reconditioners plus the splines are likely to strip on the IRD and/or gearbox.
If the IRD goes, the oil should be drained and all metalic debris flushed out. Even if just running 2WD the rear pinion should be removed and a blanking plate installed (to remove crown/pinion gear contact).
Even then there will have been damage to the bearings, so the remaining active parts of the IRD, ie the front diff, will be compromised and likely to fail.
If the IRD 'goes'. The only way to have confidence in it going forward, regardless of whether you want to run 2WD or 4/AWD, is to have it reconditioned.
Without removing the IRD, you will not know what has failed this time on your transmission. It may be splines, or it may be gears inside the IRD. Hopefully the splines on gearbox and IRD are OK and it is the IRD internals that have failed (due to worn beairings and gears not mating properly). In this instance, a reconditioned IRD should get you on the road again.
Replacing the IRD is actually quite a simple process - complicated by the K Series layout. On my L Series it is just a case of undoing about 20 bolts which I got at from underneath with a standard el' cheapo socket set and plenty of extension bars. There's also 2 hoses to the oil cooler and a breather. No special tool are required. On the 1.8, I believe you will also have to remove the front of the exhaust. The higher you can get the car - or the lower you can get yourself (ie inspection pit) the easier the job is. You will also need to unbolt the drivers side hub from the shock support so that you can push it away a bit and remove the drivers side driveshaft from the IRD.
I should add, that this is my take on IRD failure!
