Yea, its the joint where the A-Arm connects to the diff. That upper A-arm is really the only thing that keeps the axle from moving 'side to side.' The kj has not type of trac-bar like a zj or the alike has. I took my boot off and clean the joint up real good then pumped it full of grease. Hopefully that will keep it going for many more years.
I test drove an old zj I was thinking about buying once and the rear end moved a good 1-2" when you went around a corner. I got back and told the salesman about it, he told me it was normal.

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LOST KJ'S
Where are you going???
Current Jeep: 2004 Jeep Liberty
-Atlantic Blue
-Air Ride Rear Suspension ; OME/Rustys Lift ; Powertrax Locker ; Moog Lower Ball-Joints ; 245/70/16 Yokohama Geolander A/T-S's on MOABS ; Flowmaster 50 SUV
Lost #007082
http://www.cardomain.com/id/jeepjeepster