I've been on the forum for a while. I see very few failed transfer cases posted here. Unless something went really wrong in the rear differential that caused upstream problems in the transfer case I would be skeptical of a transfer case failure. Rear differential? Sure, the '04 is known for blowing those up as well as the front. You can buy a whole new axle from JustDifferentials.com (a forum sponsor). If mine failed that's what I would do because I don't know jack about differential mechanics.
If you're looking for a project truck it sounds like you found it.
If you're looking for a project truck it sounds like you found it.