The Dana service manual says replace if any wear is detected, however I was wondering if anyone has seen this type of wear before and tried to smooth it out.

I am not in love with the way the Power Lock / Sure Grip / Powr Loc behaves, and will probably replace it with an Eaton TrueTrac if this wear can not be repaired. I am not sure if this is the cause of the bad chatter & grinding, but I really don't care to take the diff apart again.

I had a true trac turn to junk because it was assembled by Eaton wrong in about 15k miles of street use. I'd run a detroit locker before a true track.

You can smooth that out, but I wonder how deep the hardeneing of those areas goes ?