Play in output shaft.A904

You should see a little play there but not nearly 1/8". I have never measured one but I wouldn't think it should be more than 1/16".. Sounds like the extension housing bushing is trashed and/or the yoke is worn. I'd measure it with a dial indicator to make sure cause sometimes wiggling things by hand can be deceiving. Is it leaking very much atf from the rear seal? If not chances are things are fine

BTW: if the bushing and yoke are worn it doesn't mean the trans is toast. They aren't hard to replace