Theres nothing wrong with that amount of play.
You have the yoke removed. The output shaft slips inside the yoke which rides against the tailshaft bushing. The yoke is what stabilized the entire assembly. So if you remove the driveshaft, the output shaft will move around like that.
It's the same deal with the input shaft. Some people wiggle the shaft and think somethings wrong when it moves 1/2" laterally. They fail to realize that the snout of the input shaft fits inside the pilot bearing and that creates the hard point.
With the yoke in place, and the correct pilot bearing installed, you are fine.
IN and OUT movement of the shafts is more critical. If you grab the output shaft and try to pull it out or push it in, it should barely move. I forget the spec, but under 0.003" off the top of my head.