Toyota 4Runner Forum - Toyota 4Runner Enthusiasts Forum - Transfer Case Grinding

Hi all! I'm new to the forum, but far from new to Toyotas. Here is my problem:

I drive a 3rd generation 2000 4Runner Limited and am having issues with the transfer case. If it matters, my 4Runner has a factory rear locker and is the version that has a push button 4WD High selector on the side of the transfer case lever. Throughout the weekend, I have been going between 2H and 4H as needed (without using the push button) and everything has worked fine. Today, as I got back onto plowed roads, I moved the lever back into 2H, the dash indicator went out as it should have, and drove for about half an hour with no issues. About half an hour into my drive, I noticed the four wheel drive dash light blinking, as it does when the transfer case lever has been moved but 4WD has not yet been engaged/disengaged. Thinking I had bumped the push button and accidentally told it to engage 4H, I pressed it in and out and confirmed that I had not bumped anything. The light went out. A few seconds later, the light was blinking again and I started to hear a high pitched whiny grinding noise coming from either the transfer case or the front end. As I slowed down, the grinding continued and there was a loud clunk which shook/bucked the whole car. I got over to the berm, stopped, and shut the car off. I turned it back on and the dash light continued to blink. Trying to experiment, I pulled the lever back into 4H and set off again. I never heard it engage the front wheels and the dash light continued to blink. I then moved the lever back to 2H and a few seconds after began to hear grinding again followed by three more loud clunks that shook the truck. I pulled over again, then proceeded back to home with the dash light blinking, the transfer case lever in 4H (only position where grinding wouldn't happen), and the car actually only having power to the rear (as confirmed on a snowy road). Once back home, I drove around a parking lot putting the transfer case lever into all of the positions. In all cases, the dash light remained blinking, I never felt/heard the transfer case engage or disengage and the truck stayed in two wheel drive. In 4H, it drives no problem, in 4L, it begins to grind, in 2H, I could not get it to grind in the parking lot, but am guessing that it would if I got up to road speed again. The car is drivable, but the transfer case isn't working and I use four wheel drive regularly.

While I am fairly knowledge about vehicles and can do many repairs myself, I am a first year student at Allegheny College in PA and no longer have a warm garage in which to work or a parent's car to drive while mine is out of commission. Any help or insights you can provide are greatly appreciated.

Thank you,
Bennett