Hi DLP,
Now a few questions just to get things clear!
Is the scope (or drive output) isolated from the "ground" ?
Not sure what you mean but the driver and scope are using the same ground (from the p/s).
Are you measuring just across the resistor (not LD and resistor)?
Well, the scope probe is on the resistor so I guess its just the resistor.
Do you see a 320mv DIFFERENCE between peaks and troughs when modulating?
The scope is reading 320mv peak to peak so yeah.
Have you set it up to measure DC (not AC, which might well have a capacitor involved)?
Do you mean the scope? If so, the input is AC so shouldn't the output be AC as well?
Does the scope still register only 80mv when you put 5vdc on the modulation input instead of connecting the wave form from the signal generator?
For some reason, it measures 40mV peak to peak (max 20 min 20) which is odd because there is no AC signal
Does the scope report correctly the zero to 5v when connected just to the signal generator?
Yes
If answers to the above are all YES, then you have a genuine mystery here!

I which case you are totally correct................. "Something is not right...
BTW what VOLTAGE does this LD require?
LD require about 3.5 Volts
Good luck with the mirror and fan !
I haven't tried it yet, whoops!
Cheers