Your right. Some one school me on transfer cases please.

I just drove it in two wheel drive and it drove fine, I stopped put it in 4hi, started driving thats when the banging, thumping and wheels locked up again.

Now if the transfer case was bad it would also show up in 2 wheel, correct?

 

Do you have the 3-button switch in the dash or 4-button?

If you still have problems, you likely have broken something inside the diff housing and once you put it in 4wd, it locks up. Have you tried getting the whole truck up in the air and putting it in 4wd? See if you can replicate the issue and try to determine where the problem is coming from.

If it were the CV shafts, it would lock up regardless of 4wd or 2wd since the CV axles are always turning.

 

It the 4 button, 2, 4hi,4lo and auto

Thats what I'm gonna have to do but with all this snow and my garage bein tied up with my dads ford its tough.

 

Well, that throws a monkey wrench into things then... The NV236 transfer case has a preloaded clutch so the front driveshaft should always spin when you are driving. This would mean that the front diff would spin as well. So the problem is occurring only when the front axle engages.

While you have it up in the air, it wouldn't hurt to drain the front diff and see if you can have a look inside for signs of damage. You may also want to pull the cable & housing off of the passenger side of the diff (where the engagement cable bolts on - 3 bolts) and see if you can manually engage the front axle relatively easily.

Also while it is up in the air, inspect the CV shafts really well. Push and pull on them as well as watch them when you engage the 4wd.