Originally Posted by JeepHammer
Cross pin SHOULD NOT have any 'Wiggle' in it. Don't know if it's the pin that is shot, or the carrier holes, but either way it's going to misalign the Differential ('Spider') gears.
Just above your bottom arrow, you will see a pin hole that keeps the cross pin in the carrier.
Time to have a serious look at that pin and it's hole.
Cross shaft should be a slip fit with a slight drag. If the shaft is moving in the casing it will either shear the roll pin (retainer), allowing the shaft to come out and hang on the pinion or begin to slap in the casing, possibly splitting it. Either scenario will result in catastrophic failure.
The usual culprit is the casing wearing at the holes. If that is the case, then the only fix is to replace the carrier housing. The housing isn't very expensive, but you will need someone to get you through the proper procedures to R+R it.
Unless there is major movement in the carrier gears or wear on the thrust washers, I wouldn't worry about them.
As for the spacer (block on the shaft), it is designed to "float" on the cross shaft. The hole in the center is oval from the factory to allow it movement when adjusting the axle end play.