Rear Axle moves when I apply brake!

yip! Yip! figured it out! when pulled the rear axle out I discovered the #26 bushing (according to the diagram OnkelB posted) was in backwards. So everytime I tightened the castle nut it would bind, so it felt like the bearings were tightening up. After assembling it RIGHT, it feels and works fine... well the rear axle does anyway. Now I have carb issues, but thats for another post. I forgot to take pics. Thanks for everyones help.

you gotta either find the sweet spot for the caliper and disc you have using shims on either side
or take it all off and stop using the rear brake
which one would I choose? :S

My KZ650 was doing the exact same thing; tighten the axle nut to 82 ft. lbs. and the entire wheel locks up. I discovered that the brake (disc) rotor grips against the inner caliper wall, because the AXLE COLLAR (technical name) was missing. I recently bought the bike off Craigslist. Ordering the collar off eBay... there are many to choose from on there. Good Luck!