The coolant sensor is actually in a dry part of the ET.
Grinding might have been water pump...listen to it in the a.m. with a hose as stethoscope...monitor coolant temp, and find the location of the leak.
If it was water pump, that would explain the grinding and the leak perhaps...though if it was starting to overheat coz of wp blown up, also, since I guess you have an auto, I don't know how heat might affect it...since it does have a cooler...which I guess would work less well if wp blew up.
Other grinding things? You maybe have a coffee grinder plugged into an inverter, which you rigged under your cupholder but just forgot about?
So you were thinking trans. coz of where you were sure sound was coming from...nothing in the drive itself?
I'm so depressed. No one wants to come see me. :(
Mangofy your E46!