I have a 88' grand wagoneer that is giving me the same simtomes as you.
I am getting some sort of crazy noise from the transfer case, not a grinding noise, but more like a bad bearing noise.
I get the noise in all conditions, 2 and 4 wheel drive.
I have a little bit of slop in the front and rear drive shatf going into the tranfer case.
Anyway, I jacked my rear end off the ground and let the car idle in drive to pin point the transfer case.
Can someone give some advice as to how to check the tranfer case fluid? Also, can someone tell me what kind of fluid I need to add to the the tranfer case if it is low..
Here is a picture of my ride: http://www.diywebserver.com/images/jeep1.jpg