The XXXCR Losi diff works very well if you tighten it up until it gets a little bit scratchy and then you have to loose it a little bit until it works smooth again, usually I use Asso Stealth Diff Grease and Asso Black Grease.
"I also have quite a lot of float side to side when the diff is assembled into the gear box... approx 1-2mm... is this normal?"
No, are there copper shims behind the drive rings or shims behind the big bearings?
Greets mace