OK, after some investigation in the bright daylight during the weekend it appears that 2 out of 3 cheapo rivets holding the dust shield are gone. Apparently the dust shield was no longer being held in place and touched the rotor. Got the axle out following these videos:
viewtopic.php?t=14757&postdays=0&postorder=asc&highlight=adjust+emergency+brake&start=15http://www.jeepkj.com/forum/f196/rear-p ... fix-49314/Not as scary as it looked. The plan now is to get the dust shield off, sandblast, paint and reattach with screws. Wish I could get a new one, but they seem to only come in $$$ rear brake assemblies - not going to happen.
Thinking about replacing the rear outer axle seals while axles are off, is there a good write-up anywhere? Haven't replaced seals for ages.
Cheers,
Alex