Find an experienced trailblazer mechanic. Either he's confused and you're remembering it correctly, or he's correct but you're telling us a distorted story. Either, way, we can't help until we get a clear description of his diagnosis and why you reject it.
What kind of help do you need? If you're not a DIY'er, we can't help you fix it. If you don't trust your mechanic, we can't improve that situation.
Basically, though:
1) How many miles do you have, and has the transfer case fluid been changed every 50K miles, as required?
2) How about the front differential? Fluid level and age OK?
3) There is indeed a shaft from the transfer case to the front differential and it has a gear on it inside the differential. If this is chewed up, you need a new differential or a rebuild and this is upwards of $1000 even with junkyard parts. Lots of labor. Did he say you need a new diff? What's he given you for a price quote?
4) ABS and AWD are separate systems except for a wheel speed sensor, which is built into the hub bearing assembly. It is easily replaced. If he says it's only possible to rebuild, he's a goof.