Yes, sudden major looseness seems really unlikely with a properly functioning bearing. And sure, $500 seems like good insurance if it's not in the same condition. It's not too high stakes of gamble. feel the output and input for play and rotate it feeling for "smoothness" (no grinding or hang-ups).
Too many years have passed, I don't recall specifics, but it was a trial and error process. The .005" would be end play like the TM alternative 2 describes, not up and down. I think they are referring to end play at the shim location, pushing on the race.
When I split the case and clean off the gasket, it brings both sides together closer when reassembled. That frees up some of the bearing shims while doing it in the truck, you would add more to push the race further in. I'm not sure where you would come up with them, probably have to make them from shim stock or a suitable metal. (These adjustments are made after the case is re-assembled and tight). Also I has the drive shaft flanges (splined) off so they did not hang on the seals. I used them for turning the shafts, but not installed, just locked by the spline. Hope that makes sense.
I did one at a time after making sure all were loose and turn free. Beginning at the input shaft I tapped with a piece of brass until the race started to be tight, working my way around to keep it square. I rotate the input shaft and keep working the bearing in until it starts to have some resistance. Then measured the distance from the face minus the distance on the flange to come up with an approximate distance (shim thickness). Then I put the shims chosen and the flange on. If rotation was dragging, I knew it was too tight. Once I knew it was tight, lightly dragging, I removed about .005 of shim. I think I loosened the shaft race by tapping the other end of the shaft, so each time I drew the flange in, it was seated. Torque before going to the next shaft. This is what I called a "light preload" where some metal heating would not make it bind, nor be too loose cold. Must work, I had no heating nor movement or growling.
I did the intermediate shaft and drive shaft using the same "feel" method. Of course since I had the entire thing apart and was reassembling with light red grease, the rotation by hand was free and obvious when going too tight. In the truck, that same level of "feel" may be much more difficult.
Oh yea, the sprag...take it off but don't get in a hurry to take it apart unless cleaning is not enough. There are a lot of small parts that make this job more complicated when it doesn't have to.