The later ... it should move if given a good turn but it should be solid between finger and thumb.
It should also feel free when spun as a diff, not grinding or tight spots.
I find it easier to check diffs with the slots in the outdrives on an old pair of scissors as they are held firm and you still have a free hand .... other people have made a tool up out of metal or fiberglass to lock the outdrives together.
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