Speed sensor (G28) has exploded

I fitted a new speed sensor last year (Bosch part) and all was well until this morning, when I overtook a car and things went a bit lumpy. The EPC light came on, followed by the EML. I stupidly stopped the engine when I was dropping my wife off and it wouldn't start again. I had a code scanner with me, so I scanned the car and got 16706 - Engine Speed Sensor (G28): No Signal.
So I paid a silly price to get a new sensor from the local dealer so I could get the car running again today. It's spring here (Finland) and things are still a bit brisk, and 6 months of ice and snow are melting. So I had to do the work in a wet, icy car park, which wasn't ideal. And when I got the old sensor out, it seems to have exploded, or had the end ripped off!
I've fitted the new one, and now I hear a rhythmic rubbing sound, which gets worse/louder when I push the clutch in. I just drove it about a mile home and parked it on the driveway. I'm going to see a VAG specialist tomorrow for an opinion, but right now I'm imagining the worst. Is there something wrong with the gearbox, and it's going to take the end off another 125€ sensor? Aghhhh... I just haven't a clue.

Or is there a piece of the old sensor flying about inside the gearbox now? hmm....
Seems like it's probably the flywheel is broken. damn..


B7 420-R Avant
The flywheel sounds like the culprit here.

If operating the clutch alters the rubbing sound, it means the rubber blocks between the 2 sections (dual-mass) are worn. In this situation, operating the clutch causes the flywheel to flex. This will alter the relationship (air gap) between the tone ring, and the crank sensor.
Cheers for the detailed explanation mate. I didn't realise the precise nature of the problem. I just gritted my teeth and paid £400 for a new one, which is winging its way to me now. I'm booked in for next monday to get it fitted by a VAg specialist/friend (so I'll lend a hand/get in the way and still pay him at the end). Sucks balls to pay this out for a 16 year old car, but it's worth a hell of a lot more here in Finland than it would be in the UK.