I think your confusing a knuckle rebuild with a differential rebuild. The "knuckles" are at both ends of the axle. The differential is in the center also referred to the "pumpkin". The differential which houses the gears usually requires a professional or expert mechanic to rebuild or modify with taller gears and or lockers. The knuckles or birfield joints have bearings, seals, and grease inside the knuckle housing and can be done as DIY.
Just looking at the birfields on your cruiser they look rusty and should look slightly greasy as the grease lubes the joints as you turn the steering wheel. Most high mile cruisers will have to have a birfield rebuild including new bearings, seals, and grease.
The differential is impossible to tell of any work to be done unless you drain the oil, remove the cover, and do an inspection. Hence the mechanic saying that the diffs need a rebuild without actually looking inside the differential housing first would be suspect. He must have been referring to the birfields or knuckles for rebuilding of which $5k would be highway robbery. If the birfield seal is bad, then the grease of the birfield and the oil of the diff will mix together and create a slimy green soup in both places, not good for either application and needs to be addressed ASAP.