Cheers for the reply Brian. It does seem like the top mounts are being used a axillary springs as I can feel and hear it. Also I bounce the rear end and I can see them moving. I took the wheel off and it does seem that the dust cover does have the washer top in. But I do need to take it off to be sure.
What I did notice when jacking it up that there was a good deal of sideways movement on the rear axle when the tyre was leaving the ground. Basically the whole car (apart from the other side rear wheel which was on the ground) shifted sideways to the side that was still on the ground.
Also when I went to put axle stands on the rear beam (as shown in this pic
http://www.e30zone.net/e30zonewiki/inde ... ing_Points) on lowering the beam was rising a good cm or 2. So much that that I thought it would pop off! Worn bushes?
As you said I think the whole suspension and bushes need checking over as something isn't right and I don't really have the knowledge yet to make informed choices. So I've heard that Crackley Motors in Kenilworth know E30's quite well so I'll drop it off there.