I just skimmed over this, but is it possible the shift linkage for the 4x4 is just out of adj, causing it to pop out of 4X4 and going into 2wd?

 

idk my guess is just the dumb vac line and backwards situation. But maybe that is possible i dont know much about the linkage

 

o wait i dont think so because it doesnt ever pop out of 4 high cuz i can watch the shifter fork slide back and fourth and it will stay in 4 high and low...

When u put it in 4 high doesnt it tell the transfer case to work? so the collar will be in 4 high but the case isnt giving power to the front axles cuz the lever wont be up. And when u put it in 4 wheel drive the collar will be in 2 wheel drive but the t-case wont have anything to power. so the grinding could be the transfer case trying to give the 2 wheel drive power to the axles.

 

When u put it in 4 high doesnt it tell the transfer case to work? so the collar will be in 4 high but the case isnt giving power to the front axles cuz the lever wont be up. And when u put it in 4 wheel drive the collar will be in 2 wheel drive but the t-case wont have anything to power. so the grinding could be the transfer case trying to give the 2 wheel drive power to the axles.

 

which transfercase do you have