DIAGNOSIS That's the sound of the hammer mechanism—a spring-loaded ram that hits an anvil—operating without lubrication or with debris inside. In hammer mode, the gears engage that mechanism, and if it's dry or gritty, it grinds.
FIX You need to get grease into the hammer mechanism. Milwaukee packs it with grease from the factory, but it can dry out or get pushed out by dust. 1) Remove the chuck (see the other question for how). 2) Look into the spindle where the chuck was. You'll see the front of the hammer anvil. 3) Apply a small amount of high-quality lithium grease (Milwaukee recommends theirs, but any good bearing grease works) around the anvil and the visible parts inside the spindle. 4) Reinstall the chuck. 5) Run the drill in hammer mode (with NO bit, off the work) for 15-30 seconds to work the grease in.
IF THAT DIDN'T WORK If the grinding is truly metallic and harsh, the hammer mechanism's internal parts may be broken. A worn or chipped ram or anvil will make a bad noise. At that point, it's a gearcase repair, which for most folks means sending it in for service.
HEADS UP Never run the hammer function without the bit pressed against a surface. The mechanism needs the resistance of the material to function correctly. Free-spinning in hammer mode can cause extra wear and isn't good for it. This noise is common if the drill's been used heavily for masonry and never maintained.