Both of your issues point to a non-functional Transfer Case Motor Brake.
If this is part of the encoder motor I would feel better....or is this internal?
After my drive home from work, I have a better list of details, likely reinforcing BRoman's post.
When I start the engine, I get all the lights on the 4WD selector light up momentarily, then when I select R or D, the transfer case goes into neutral, but with the 2HI light illuminated....now I believe the TC went into neutral after the engine was started. So naturally there is no movement so I put the trans in Park and I get the grinding park pawl noise until the trans stops or I take it out of park. Then I change to A4WD and I get an abrupt halt in the TC and I have power to the rear wheels. I put the selector back into 2HI and was able to drive off.
Then while in 2HI, after about 2 miles at 50 MPH, I lost power to the wheels and coasted to the shoulder. I selected A4WD and it locked in and I was able to make it home. Once home I went from 2HI, to 4HI, then 4LO, I had proper gearing in 4LO, then back to 4HI, then 2HI, I had power in all ranges but unable to test front wheels in 4HI.
I trust it's the encoder motor, but seems it could be a corroded harness at the firewall or maybe the TC...but I don't know. The motor brake sounds very plausible, first time I heard of it.
I'm curious how to check the switch and the resistance/voltages...hoping it's not the TCCM but if so, could I plug and play an 03+ TCCM without reprogramming?