Todd,
Answers to your questions:
1). Yes, this is too much run-out.
2). Yes, You'll feel this for sure.
3). Make sure the end of your axle (where the rotor mounts) is CLEAN. Clean it with a wire wheel, if you have the means, remove the studs before you clean it to make sure you have a perfectly flat surface to mount the rotor on. Also, make sure your lug nuts are always torqued to spec (~100-120 ft. lbs) when you do the run-out check. Check for cracks in the housing mounts (where they are welded to the housing and where the tubes are welded to the pig, this is usually a sure sign that something got tweaked. If none of this helps, pop off the diff cover and c-clips and swap the axle shafts side-to-side to see which one is bent. If the runout follows the shaft, then obviously it's the shaft, if not, then you get to go housing shopping. I've also (once) seen someone install the outer axle bearing without fully seating it and this happened so there's one last-ditch thing you can check if it's looking like the housing.
4). Obvously, if this was mine, I would be concerned.