I think I have the same exact thing going on. Recently disconnected my sway bars and the sound got quieter but still there. This led to me replacing the drop links with the Tf220 Terrafirma extended drop links and sway bar bushings. Keep in mind that the front bushings are different from the back since the sway bars are different diameters. So sound is still there...

What's the easiest way to test the watts linkage? Is there an easy way to disconnect it in order to see if the sound completely disappears? Or is it a pain to disconnect?

 

I don’t think you can drive it with the Watts Linkage disconnected.

 

Don't drive it without the Watts connected. Think driving the front with no panhard, there would be nothing to keep the axle centered.

 

Yeah that makes total sense. Thanks, all. Will see if I can tell where the knock is coming from by having a friend rock the car side to side.
Any suggestions on a replacement watts linkage? I have a 2" TF lift so not sure if I should go for an aftermarket version that has the cranked arms or maybe just convert to a panhard rod setup.
Seems like a much cheaper solution.

 

I'm not one for the rear panhard swap while maintaining the stock suspension set up (radius arms). The Watts while not cheap works great especially on smaller lifts and no chance to do it wrong.

 

Same issue myself, for me ended up being the rear sway bar tie-in ends. One had gotten tweaked, hard to notice but metal on metal the axle connection end.Problem solved.

 

I had my friend rock the truck when I was underneath and noticed the lower watts linkage moving around within the bushing. Ordered a replacement bushing. Can this be done without jacking up the axles?

 

My D2 even lifted and watts linkage binding I had no problem taking it off so I assume putting it back on should be fine too. As a result the outer two bushings at the differential were worn out. I have since purchased extended watts link arms to accommodate the lift.
If you're going to replace one I would suggest replacing them all as they are all likely worn out.
However, probably tmi, with all I've read and the fact the bushings wear out so easily/don't last long and cost a ridiculous amount of money I've decided to replace it with a rear track/panhard bar instead. It's bolt on which is cool though I'll have to trim off the stock watts linkage bracket.
This I'll need to lift the D2 allowing the suspension to hang to get it on from what I've read.
So, if you or anyone is looking for some extended watts link bars with the bushings already pressed in on the arms let me know. I'd send the center connection too but you will need to replace those three bushings as well.