My "new" 1991 740 wagon came with the original window sticker, which indicates it has a locking differential (an option that cost $385). I was flushing the brake fluid today, one caliper at a time, and when I had one of the rear wheels off the ground (and the other on the ground) I put the automatic transmission in neutral and spun the wheel by hand. I expected it not to spin freely, but it did. The other rear wheel did the same thing. So I saw no evidence of a locking differential. Maybe I don't understand what a locking differential is and how it works?

For those interested in this kind of stuff -- my '91 740 wagon's sticker price was $24675, plus $265 for wine-red metallic paint, plus $895 for leather seats, plus $385 for locking differential, plus processing and destination for a total of $26738. The bill-of-sale was also in the glove box, which indicates that the buyer actually paid $23368. 11 years and 125K miles later, I got it for a $20068 discount :-)
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Matt L. -- Cary, NC -- two '89 740 sedans and a '91 740 wagon