1993 K1500 Transfer Case Grinding

Help! I'm hearing a grinding from my transfer case, like trying to shift gears without using the clutch. It happens in 2 wheel high when I accelerate hard in 1st gear and it will do it sometimes if I accelerate hard in 2nd gear as well. It sounded to me like the front end was trying to engage but couldn't quite get into gear. I disconnected the 4wd switch directly above the shifter arm on the transfer case that engages the solenoid on the front end. I did this thinking that if the switch was shorting, unplugging it would tell me if it was trying to engage the front end. No luck, it still does it. I DID find that if I pull the transfer case into 4 wheel high WITH the switch unplugged so the front end doesn't enagage but the front drive shaft turns, I can't get it to grind or make ANY noise. At this point I'm driving it in 4 wheel high with the front end NOT engaged just so I can get around. It seems to me the transfer case is shot. ANY ideas would be MUCH apreciated. Thanks. BTW, the transmission is a 4 speed WITH overdrive (5 speed), the engine is a 305 and the transfer case is a New Process 241C.

I found the problem. The bearing retainer ring broke and was allowing the output shaft to move. I took off the output shaft extension housing and the ring fell out in four pieces. This website (http://www.drivetrain.com/gillies/Tcasesaver.html) has a great fix. For now, I purchased and installed the replacement retainer ($5.46), and I'm going to order this "Transfer Case Saver" and install it next weekend.