I have 99 XJ Sport and my 4WD lever has 2w-high, 4w-high, N, and 4w-low.

When driving in 2 wheel i hear no problems at all but sometimes a wiggle in steering around moderate turns on dry pavement. Now when i put it in 4 wheel high i hear a grinding that resembles a bad wheel bearing but I have checked them(wheel bearings) myself and there is no issue. This grinding noise is easy to hear at low speeds and gets much worse with increased speed. Then if i pull it out of 4 wheel (sitting still in neutral of course) this grinding will not go away right away if i shift back into drive and take off, but if i go in reverse about 10 feet or so, it will. I have checked the fluid and its full but seeping around the pinion gear on the outside of the diff. Bad pinion bearing that wore out the seal? Bad axle-joints? Bad t-case or what?
Any help is greatly appreciated, diffs are a fuzzy area for me so diagnosis is hard, trying to see how whats the best route in fixing.

 

Check all your u joints.

 

Just to make things a little clearer, you are not putting the transfer case in 4-Hi on dry pavement right? If you are, then going around turns causes a binding in the drive line as all 4 wheels are being driven at the same speed and trying to travel different distances. Under these circumstances something has to give and hopefully it is the tires emitting some chirping like noise as you go around the corner.

 

Transfer case does not shift all the way immediately, so that is why you have to drive a little for the noise to stop after shifting out of 4WD. Not an answer to the problem but it explains one of your symptoms

 

No the steering wiggle happens in 2wheel high and i have checked both front axle joints and even had a seasoned mechanic agree the joints are good, even though i bought them and intend on replacing them anyway, and to add i have the Chrysler 8.25 rear end and the 231 transfer case, the front is a dana 30, i think, whats the best recommed gear oil weight for the front end?

 

2000 FSM says 80W-90 for standard use and 75W-140 for "Heavy Duty" or tow use. Also specifies synthetic for the 75W-140.

 

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Have you checked the fluid in the transfer case? Noticed you mentioned the front diff but you didn't say if you checked the tc fluid.