Have loud ratchet-like noise in front end when 4WD (or lo) is engaged. Not in 2WD.

Steering is also stiff on this vehicle, especially on tight turning. Horn recently stopped working.
Its at the shop now. Mechanice originally thought it was axle, but explored and eliminated that. Now he thinks it's the front drive shaft as it appears 'worn' - although both universal and cv joint ends both appear good. Called a transmission shop who said it might be transfer case.
Hate to put $$ into new (rebuilt) drive shaft if that'snot the problem.
Money is very tight.
How to diagnose accurately? Any help would be appreciated.