Transfer Case output shaft moves up and down

I have a 2000 Silverado Z71 4x4. It makes a roaring and grinding noise when i engage 4 wheel drive after truck warms up. When cold it works fine. Checked fluid levels in both transfer case and differential, there ok, while checking u-joints I noticed output shaft in transfer case moves up and down, also play inside transfer from side to side. Anyone know what my problem might be? Thanks

Sounds like the transfer case is going bad...mine did. Cost over $1500. I treated truck like baby ... no fast get aways etc. so puzzled why I had the problem. Coating on my gears came off and overheated. Leaked oil like a sieve.

My truck has same symtoms mentioned above but at this point its up and down. I'am guessing there is a bearing that on its way out and can only be repaced by splitting the cases?
Thanks