97 Z71 Transfer Case Problems...help

I have a 97 Z71 pick with auto transmission, recently, last 3-4 days it appears as if the transfer case is starting to slip between 2wd and 4wd. Coming off a stop when I get up to 10-15 mph it starts to grind and then usually pops hard, then is fine until I reduce speed again or come to a stop and then go. I find that if I hit the 4H button as it starts to grind it goes away, and then I can drop it back into 2wd. I also ran it around in 4H and never had it make a noise. So it appears that it is slipping into 4wd partially, atleast enough to make the grinding. I'm not familiar with how these transfer cases operate, vacum solinoid ? Any help would be appreciated!

This sounds familiar to a problem a buddy had with his 95 Suburban,
it turned out to be a broken Dring inside his transfer case, according to the tranny shop this is a common problem.

Take it in before you tare it up!