First thing to determine is which axis is grinding. If everything appears to be returning to their 'home' positions, but it is still trying to run the motor on that particular axis then the game logic board is not seeing the 'home' signal from the sensor regardless of if the indicator light is coming on or not. The light will come on if the sensor has power, but does not indicate if the signal is actually getting anywhere.

Once you determine which axis the issue is on, I would start by chasing the cable from the associated 'home' sensor back to the game logic board. I'm betting you find a frayed/chewed/broken wire or a connector partially or completely off at the sensor or game logic board. Also look for signs of corrosion on the connectors at the sensor and game logic board. It does not take much to block a logic level signal.

And I'm right there with you, the manual (if you can really call it that) is pretty minimal. It is overall though a fun if intentionally aggravating game.

I have the 'redemption' version with the ticket dispenser and line of target buttons across the center for people who want to go for mass quantities of tickets rather than the goodies in the grid. Depending on mood, (and who all is playing) I have a blocker bar which attaches with velcro over the buttons if I really do not want to watch the machine spew forth tickets for ten minutes if someone gets hot on targeting!

I would still focus on the wiring and connectors to start. There is a 'home' and a 'miss' flag on the 'Z' (drill forward/reverse) axis which I believe are both detected by the same optical sensor. I will have to check my game, but I believe that the game pretty much just does a 'brute force' home on the X & Y axis at startup and then just keeps track of the positions based on the motor steps during play.

Which also means that if the 'X' or 'Y' axis are binding or slipping during movement, the game will lose track of the positions and play goes on and will start crashing into the physical stops resulting in the grinding sounds as it continues to try to step the motors.

An open circuit caused by a broken wire can cause the grinding when the game tries to return the 'Z' axis to it's home position since it never sees the signal.
While a short caused by a frayed/chewed wire can cause the 'Z' axis to stop randomly on return when it sees a false 'home' signal. Dirt/dust in the optical sensors can cause similar issues, as can a faulty sensor.

One other things that comes to mind, it is possible for the moving frame assembly to get out of square which can cause binding in the 'Y' (vertical) axis.
Adjustments for this are on page 36 of the manual. (at least the copy I have)