I still made full boost with my 02 when it was like this. You will be able to feel shaft play on the turbo when you take it out. It's not going destroy your motor instantly, but you really shouldn't drive it like this. The turbine is scraping the housing, and the metal bits are going right into the motor (no filter), so best to get it replaced ASAP.
Regardless, the turbo is shot, there is ZERO question about that.