theres fluid coming from the vent hose and theres a knocking sound coming from the torque converter the tranny shifts good the 4wheel drive works fine any ideas would be greatly appreciated

 

Is fluid coming out of the vent hose on the transmission or the one near the transmission dip stick under the hood?

I would pull the fill plug (upper large plug) on the back of the transfer case. Be prepared when you finally get the plug out, you may get some fluid pouring out.

If fluid does pour out, the transfer case needs to be dropped and the front input seal replaced. When the input seal goes bad, transmission fluid can push past into the transfer case, over filling it and forcing it into the vent system for the t-case and front axle engagement system.

If it is coming out of the vent on the transmission, then you may have a clogged or otherwise restricted transmission oil cooler.