(not questioning you, just looking for clarification)
Why do I need a rebuild kit for the L/S and why does that look to be the problem? Obviously I don't want to just replace the gears (which Viva*the*Ranger did a great job explaining) if something else caused the problem, because then I'll be right back where I started.
Thank you guys for all the info. It is greatly appreciated, and I will make sure I do a full write-up when I'm done so that anyone in the future may have a guide to go by.
I say you need a rebuild it because of how these limited slips work. There are steel plates and friction plates behind the spider gears (steel plates splined to the shafts, friction plates keyed to the carrier), as these wear down the gear mesh between the spider gears and side gears gets worse causing the gears to wear. While you are in there, take the rebuild and rearrange the discs, you can add a couple more from the old pack, and make it stiffer, from the factory they have a funky order which you will see when you get in there.
If you look at one of the pictures that was posted by 06rangerXLT you will see the fingers of the friction plates. If you look at the picture of your axle, you're missing one of the fingers, that's probably the culprit of what did the damage.
The hardest part about this is getting that dang S spring back in, but it just takes some patience, getting it out is easy, just pry it and twang...

. Also grab a little packet of LS additive, it'll help the clutches last a little longer.
Get as much of the metal out as you can, but there's a magnet on the diff cover to gather the rest of the magnetic material, if you want, stick a STRONG magnet to the pumpkin on the inside somewhere where it won't hit the carrier or gears to gather any further metal, that's what I did...
Another tip, it's faster to fill the diff through the ABS sensor hole than the fill hole...