I have a 1991 318is. It has a 4.10 LSD. I have it up on jack stands, so the wheels are off the ground. With the parking brake off, when I rotate either rear wheel I hear a noise that sounds like something rubbing/grinding on heavy, solid metal. I can rotate either wheel about half a turn with this noise until it becomes much more difficult to rotate the wheel further. When I removed one of the rear brake calipers, it was definitely contacting the rotor.
When I turned the rear wheel to test for an open or limited-slip differential, I expected the only resistance to be the weight of the parts in motion. However, in the bentley e30 manual on pg 1-13, it says "Operating the car in gear while the rear wheels are suspended will cause damage to the axle shafts." Also, on page 150 of "101 Projects for your 3 Series" it says to push back on the brake pads until the brake disc turns freely. In light of these statements, I don't know whether what I've observed is normal or if it indicates a problem. HELP!