Thanks for the reply Salad. Im going to bet those plastic pieces inside the transfer case are the problem. Its the blue and clear pieces in the picture, correct?

Applying light pressure to the shifter **** would also apply light pressure to that selector as well, right? That LOOKS like it would cause the sound I'm hearing. My car only has 101,000 miles so it most likely means the linkage is improperly adjusted?

At this point, properly adjusting it would not fix the problem, meaning the internal bushing would have to be replaced, I'm guessing.

Thanks again for the help.

EDIT: Alright, from what I've just quickly researched, it appears as if these pads can be replaced without taking the transfer case out of the automobile. Anyone have any good writeups on how to access these pieces. I think these are the replacement pads that I would need. LMK. Thanks.

http://www.quadratec.com/products/52219_0003.htm

 

Yes, IF your linkage is in good shape then it would be moving the selector internally. Adjustment as well as grease and bushings are a good place to start.

Those are indeed the pads for the shift forks. You can perform some service on the transfer case while it's in the vehicle but it's a pretty big pain in the rear. Instruction-wise, it would be very similar to installing a full SYE kit, but instead of putting in a new output shaft you replace the mode and range fork pads.

In my opinion, for all the trouble it would be more prudent to just yank the whole thing and disassemble it on a table with some lighting. If you have the tools you need and a decent work area, it's an afternoon job (or a lazy day) for anyone who can follow instructions to tear it down and do a basic rebuild. If you do end up having to crack it open be prepared to replace the rear oil slinger and the output seals.