It happens when in 2HI. It's not muddy enough around here right now to drive around in 4Hi too much but I would assume it would do it in 4Hi also.
It does not happen too often but I'd like to take care of it before winter sets in and I wreck it any further. I'm assuming that whatever connects between the tranny and transfer case internally is wearing out or already broken since it only happens while on the gas = more torque applied seems to make noise happen more often. If you're real easy on the pedal it usually will not happen. Like I said before, I'm not familiar at all with transfer cases but I'll probably pull it and educate myself a bit. If I pull it out and am able to fix it what do I need to put it back together? Is there a seal kit or gasket set to buy? Also, I'm assuming these older ones take ATF, not the green crap that my '02 has in it.