I think I'm going to need to open it anyway. So the big question....
Do I spend 200 bucks on parts and hope for the best or do I bite the bullet and spend the 600 on a rebuild?

I'll get some pictures up once I pop it open and maybe that will help determine the best course of action. Thanks for all the advice!

 

I bought all my parts here:

http://www.southwestgear.com/swg/ind...chk=1&Itemid=2

 

i would pull the case cover, cause it sounds like a chain to me. the chain streches and then drags on the bottom of the case. also the chain spins at all times even thought you are in 2wd cause you have a solid shaft up front. only the CAD axle will not spin the t-case in 2wd. tape a camera up under the jeep and drive around tow, do it in 2wd and 4wd, then we can maybe pin point the noise. or you could just throw it on jack stands and do it that way (not the safest way)

 

Well that sucks his front end does not dis-engage while in 2 WD drive. I keep forgetting i have a H.P. Dana 44 up front with hubs, so i have no spinning front drive line while in 2WD.

The 231 & 242 T cases are pretty tuff, i would just split your case in half & re-build it before you spend the money to purchase another one. Once you split it in half, you will see they are a pretty straight forward T case too work on, and there are no big surprises.

 

My buddy and I put the rear up on jack stands to hear it the first time. We just have to be extra carful and park it against something solid. I like the camera idea too.

 

If you pull the rear case half you can get a real good idea what shape your transfer is in and how indepth you need to go. Reslicone, reassemble and get the parts.

Typically i charge 400 for a cleaned and rebuilt transfer, i'm sure you could find a competent wrench out your way who can do it for ya.