What happens is that, as the two front wheels get tossed up and down relative to each other, each side of the sway bar gets pressed hard either upward or downward against its bushing - creating a temporary gap between the sway bar and the bushing on the other side of the bushing hole. Then the direction of the force on the sway bar rapidly changes direction and the gap closes and the sway bar slams against that side of the hole in the bushing - the clunk noise is created and reverberates thru the frame.
When the sway bar is not under stress, there are no gaps - even after it is worn out, the diameter of the bushing hole is still (unless *really*
*badly* worn out) slightly smaller than the diameter of the sway bar, and you can't create enough force with your hand to create any gaps. So the bushing looks fine to you. When it was new, the bushing hole diameter was smaller, creating a lot more pre-load (pressure) against the sway bar diameter, so the gaps didn't occur under load.It's the ten-times-greater forces than you can create with your hand that creates the gaps and slams the sway bar against the sides of the bushing hole that makes the clunking noise with a bushing that, with no load, is in contact all around the sway bar (i.e., a bushing that looks fine).
Bill Putney (To reply by e-mail, replace the last letter of the alphabet in my address with the letter 'x')