There could be a few different things he heard.
Let me explain how the axle works real quickly. The power is transmitted into the driveshaft, the driveshaft turns the pinion gear inside the differential. This pinion gear contacts a "ring" gear at a 90* angle to it. The ring gear is mounted on a "carrier" which will spin and transmit the power to the axles that connect to it. Inside the carrier, there is what is called "spider and side" gears that allow the two axles to turn at different rates, allowing you to turn your vehicle either direction. The most common thing to go wrong would be the bearings that the carrier ride on. They are a little on the pricey side, not the actual bearings themselves, but setting up the tolerances between the carrier and its ring gear to the pinion gear. The tolerances are very tight and must be correct. The prices your mechanic quoted sound to be on the high side. Might I suggest finding a driveline shop or perhaps have a transmission shop look at it and give you an estimate when the time comes.
Next probable set of circumstances would be a bad pinion bearing. The bearing would wear, causing an irregular surface for the bearing to ride, which in turn causes faster degradation of the bearing...so on and so forth until it gets to the point that it allows differential lube to leak out of the pinion seal (around the same area as where the rear driveshaft connects to the rear axle assembly). Once the leak starts, the fluid level could drop, thereby starving the pinion bearing of lubrication, and that also speeds failure along. Replacing the pinion bearing is pricey because you just might as well replace all the bearings in the entire rear axle assembly. You also have to set tolerances within the pinion gear (depth, bearing preload..blah blah blah), then you have to redo all the tolerances within the entire differential. (the reason why I say you might as well rebuild the entire axle) If it is a limited slip, might as well replace those pesky clutch packs, side and spider gears, might even need the ring gear.
There is an excellent source right here on this forum that will ship a replacement differential to wherever you want him to. 100% rebuilt and ready to go.
His "screen name" is Ericautopart. Send him a private message if you are interested. It will be cheaper than the price quoted to you by the mechanic.
Check out this thread:
http://www.explorerforum.com/forums/showthread.php?t=274594
