I think the small shaft that leads to the CV axle on the front differential is broken at an angle. 4x4 will engage but jumps out. With the front off the ground and turning the passenger side wheel it spins freely and then encounters some resistance. I also notice the differential moves to the driver side a bit when doing a full rotation on the passenger wheel. Any thoughts? Any suggestions about a fix?

 

If you suspect things of being broken or otherwise not functional in the passenger side extension tube, your only option is to remove it and check it out. There are pictures posted in other threads of what you will encounter in there. It isn't too difficult especially if you have the flanged CV shaft like some of the early 2nd gens and (IIRC) most of the 1st gens do (your year isn't listed)...