BRAAP, you and I were right. Oh, yeah we had rubbing.
It was the u-joint hitting on the swap bar. I unbolted the sway bar, pulled it out of its frame mount and tye-wraped it so it wouldn't drop and ran the car forward and backward several times. Of course I am totally deaf now from the open headers but there is no clunking! Yahoo. Now the question is how do I fix this. The obvious but most expensive one is to get a rear mounted sway bar. Or I could just take the thing off and see how it handles without one at all. Or somehow figure out how to lower the frame mount which looks tough since the bracket is welded on and at this stage I don't want to attempt welding in that area. At The Chiropractor's suggestion I will pick up a new diff isolator anyway just because its a good idea. Who know maybe that will raise the diff enough to fix it. For now I have pulled the bar out completely.