4WD grinding?

From the description it sounds like an issue in the T-Case itself. That would account for the lack of 4L and the grinding. It is most likely in the clutch area of the case as you have the auto-4WD option and that is a failure point. Testing it isn't that hard. First you drain the fluid out of the case and look for metal in the oil. The drain has a magnet and is item 27. The fill is 28. If you find metal, then you pretty much need to either rebuild it or replace it to get 4wd back. Now if you don't find metal then you can disconnect and remove the front drive shaft. To do that you remove the straps that hold the U-joint to the front axle. Then remove the clamp that secures the boot on the transfer case output shaft. Then pull the shaft free. Now shift into 4wd and see if the noise is still there. If it is you have your answer. Swapping the case out isn't really any harder than the work you have done already, however you need to look at the code on your current T-case as there were multiple revisions that don't interchange.

Based on that info it may not be the T-case but the more common front axle actuator. It's basically a heater with a wax material that expands when heated. It pushes the locking collar into position to make the front axle operate in 4X4. Replacement is easy, jack up the front end and go to the side of the front differential. Disconnect the actuator connection. Then unscrew it. Apply a bit of Permatex sealer on the replacement and screw it in. Torque to 15 ft lb. Reconnect and test it. Be aware that in extreme cold it can still act up.

Front axle actuator. Item 1 in the image. Part number - 26060073 It's sort of possible to test it, you would remove it, then reconnect it and start the engine and select 4X4 and see how long it takes to deploy but there isn't a real "standard". I normally just consider under 3 seconds to be good.