We took drive shafts off while it was in the truck and ran first the tranny, then reconnected the transfer case and ran it in low and high. In high, there was noticeable play at the emergency brake/front yoke (of rear driveshaft) and a whine. At higher speed it shook the entire emergency brake mechanism. I now attribute that noise/movement to the bearing pre-load. To tighten one must moving the cup into the housing cover, shimming or removing shims. The output had 3-4 shims, which if removed (one at a time checking pre-load), will tighten that shaft up.
All apart and the gears look like new and not a single glitch in the bearings. (This is a Rockwell T 138, not the 1138.) With the transfer case apart, I spun each bearing in it's mating cup and have absolutely no roughness. There were no leaking seals, but with output shaft play, it certainly would not take long to develop.
I noticed that 2 of the three internal shafts (output and intermediate) can have an adjustment made on the taper bearing cup, but am not sure which one to set first. If I were to use "form a gasket" and it had a very slight difference in thickness, it would not matter as all adjustment seems to be made after the main case is re-assembled...then bearing loading set.
Since this transfer case looks almost new and gears have absolutely no wear, is it possible they did not set the output shaft bearings properly, letting the output shaft have room to move at higher speed (and shake the **** out of the emergency brake setup)?
Now I'm wondering about gaskets. Mine were glued on both sides and now are destroyed. Is there a reliable form-a-gasket?
While I hate to do more work than necessary, I don't think taking it out and inspecting all components was futile...and I can't imagine setting the bearings still in the truck, although it could possibly be done if one knew EXACTLY what they are doing. I had to see it apart.
And I'm still trying to find a TM if anyone has a lead! There has to be one for setting this transfer case up...but I can't find it.