[dixie460]

On the 1023/25 tractors, pressing the brake pedal applies the differential lock first, then as you press the pedal further the brakes are applied.

Were you turning when you hit the brake pedal? Turning would mean one rear wheel was rotating slower than the other, so applying the differential lock in that situation would cause grinding.

 

[dixie460]

Before you mow, you might have a look-see underneath? The brake and diff lock stuff is all mechanical, perhaps you might see the cause of the noise. And AFAIK yes, the brake is a wet disc internal to the trans.