This sounds EXACTLY like the problem I just dealt with.

Pull rear driveshaft.
With a big pair of pliers grab the output shaft of the transfer case and try to push it in and pull it out.

IF it moves, the output shaft retaining ring has failed.

Rather easy fix.
Only have to pull the rear-most tailshaft housing. Not the one with the speedometer hook-up.

Remove three bolts and remove rear tailshaft housing. (Usually siliconed on.)

You should see a bearing.
On inner race of the bearing there should be a retaining ring. If not there..well kinda simple...install one.

Without the retaining clip the shaft can slide in and out disengaging the shift mode synchronizer sleeve. This sleeve is what the 4wd shift lever actuates.

I can send pics if anyone wants.

 

i had the same problem it was my hi-lo shift fork inside the transcase. my first time it exploded the second time it was just worn out and will cause grinding and a lot of sloppy movement in the transcase. almost possitive thats it.