Seems like we are both geographically screwed Mike.
I have often bemoaned the fact that knifemakers are so few and far between up here. Only one I met awhile ago took off to France, the others I know are in South Africa.
If you have so much backlash, the machine is still good to use. I have worked with some fairly wrecked machines over the last 30 years and many things are possible if you respect some basics.
All machines have a bit of backlash, they have come pretty close to eliminating it on CNC machines but they have highly precision ground screws that run with ball bearings and there is the computer that compensates too.
There should be lock screws on the x and y axis, ones that you can adjust by hand. Tighten these up so that you just feel a BIT of resistance when you turn those lovely handles. This will not eliminate the backlash but it will help against lateral movement.
Most important, NEVER "climb" cut. I do not know how much you know about machining so forgive me if I tell you something you already know.
Always cut in the same direction as your cutter is turning and you should not have a problem. This way the cutter is pushing against the job and the force is even. It is when you come back (climb cut) that problems start if you have a lot of backlash. The cutter will bite into the steel and pull itself along and ruin the job and very probably, the cutter. I have seen this even with new, top-of-the-range machines. It is just the nature of things.
I hope this helps.
If I can be of more assistance, just ask. If I was close by I would be an absolute pest.
As for the sounds in the head, I would have to hear it. Do you have a variable speed or geared head?
Mike