Mine is doing something similar since I changed the clutch in my truck. Not really sure what I could have messed up during that time, but ever since it was put back together I've had the noise.
Mine goes into 4Hi and 4Lo, and it definitely sends power to the front axle, but it makes a lot of noise, especially when I'm in gear and not throttling. As long as it's under power, the noise is almost impossible to detect, but once I let off it comes out loud and strong.
Haven't been able to pinpoint the grinding noise, even after removing the transfer case twice. The first time we dropped it out, tore it down completely, and put it all back together with only one new bearing on the front output shaft, since that was the only thing that looked even remotely worn out. After topping it off with fresh fluid, we tested it several times, and always the sound was there. Even went so far as to tear the front axle down to see if there was anything in there that would cause the noise, but no luck.
Took the transfer case back out a couple weeks ago and just opened it to see if there was any recent wear or shavings anywhere, but to no avail. If anyone has any ideas, feel free to let me know!