I would suggest if you dont feel comfortable taking your transfer case apart, take it to a transmission specialist. Recently I had the same problem you are explaining. At first it started out as a clunk every now and then which led to somthing that sounded like a loose chain slapping the inside. Needless to say I waited too long and I have just replaced my fork inside the transfer case, (chain was fine), did some more looking around and also found my rear differential almost demolished. The pinion and ring were severly chipped, the bearings were shot, and the Race bearings ( I think thats the correct term) where they sit on boths sides of the gearing under a U type bracket, spun and dug quite deeply into the carrier. That sick thing is I just had it apart 6 months prior to clean up and reservice and there was no visual damage. All in all, I now had to replace the whole carrier, (another dana 35 as thats what was available in the short time I needed my rig back) and change the fork in my tranfer case as well as reseal, and put new bearings in everything. Only plus was a new S35 kit since it was all tore apart. I dont think the transfer case had anything to do with the rear carrier but this shows how stuff can snowball if you wait too long. Take it to a specialist and at least have it looked at. The worst that can happen is its something simple. For reference my rig just hit 100,000 mi. Also I would HIGHLY suggest replacing your U joints on your driveshafts if you have not done so in awhile. I just noticed you have the same year and these are things that went south recently. I had only bought this 3 years ago so I cant tell you what if anything was changed before I bought it that should have been routinely replaced. One thing alot of people forget about, including me, is servicing your transfer case. The fluid was black.
Last edited by greedy; 10-30-2008 at 10:20 PM..