The oil sounds like it's coming from the engagement unit. That is the item that locks the front differential when you put it in 4wd. As far as the transfer case. They are hard to hurt, and the problem you described could come from axle joints or front differential problems. Regardless, I strongly recommend having a second opinion. Are there any other shops that you trust in the area? I know where I live there are shops that work only on standard trans, transfer case, differential. If you go to a general type shop, god knows what they may tell you. From some of the things I've read since I started working with these guys, it's really scary what some shops do.
Let me know what you decide. You may want to make sure the front differential is full of gear lube. I think it takes a standard GL5, but just confirm that with your manual or the parts store.
I look forward to hearing back from you.
Wednesday, December 17th, 2008 AT 9:36 PM