When My TOB was fried in my T2 it made a terrible noise..lol.. I would suggest as mentioned earlier adjusting the plunger depth (the rod on the clutch pedal) run it both directions to find the "sweet spot".. My old t2 was a wreck until I did that..

Here was my T/O when i dropped the tranny-

http://rotarycarclub.com/rotary_foru...1&d=1238469700

And here is a toasted clutch and TO due to mal-adjusted Master/slave (previous owner self installed the master/slave.....poorly) But i replaced the clutch, re-adjusted it all, and boy did it change the car.

http://rotarycarclub.com/rotary_foru...1&d=1238469733

Very strange problem, I would check the hydros, and the adjustments..