Thanks!
But no I have not taken it to the dealer. If I were going to do that I wouldn't be asking questions on this site. I do the majority of repairs myself. I have determined it is indeed the bevel gear or transfer case as some call it. I have since purchased a used one and will be installing it soon. I'm just waiting to buy a new right front drive axle as it has began wobbling and I can get a new one for about $125 and that way I will have new CV and everything on that side and won't have to take it apart twice. By the time I'm done I will have an excellent insight into this procedure. I am also going to disassemble the old unit and attempt to identify the weak spot that has broken. I do consulting with a machining manufacturing shop and will attempt to produce a new gear, that is stronger, to replace the weak points within the unit if possible so I may have a supply of internal repair parts in the future for anyone having the same problem if all works out. All together I've paid $369 for transfer case with 36,000 miles on it. Add the $125 for the axle and four hours of time and the problem should be fixed. At least that is the plan. A total under $500 sure beats $3000 plus at the dealer. Thanks for all the replies.