Bill - seems like a shift actuator problem to me, not the transfer case itself. My 2006 did a similar thing when the actuator was soaked from slush on the road. My transfer case would shift from high to low while I was driving - not good noises. My dealer took the actuator apart, repacked it with dielectric grease and I never had the same issue again. Probably not exactly the same thing, but something to look at before you replace the case.
06 Limited, 4"SL+SSR, Deaver front coils, 285 KM2's, winch, GL bumper, AFE, FM50 - SOLD July,2012...
Last edited by kmax; 12-08-2012 at 07:00 PM.