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I would pull the axle shaft on the impacted side and see if it is broken. I would think that or damaged gears in the rear end would likely be the problem. I wouldn't think it would be in the transmission or transfer case. Good posibility of a bent axle tube too if that is the case. Probably be driveable by pulling the drive shaft and using 4 wheel drive to get you to a repair shop or home.
Boondocks problem found, new axle and housing needed....
Well Boondock called me up and told me what happend, and asked if I could help out going to get the truck. So I met him at the truck, we pulled the rear driveshaft and drove the truck a few blocks back to my house in 4hi. Backed it into my garage and decide to start tearing into it, I figured the axle was broke by what was going on with the driveshaft and rear end, and was curious as to if the housing was bent, well the axle is broke and the housing is bent.
BTW if anybody is interested I've got a real nice '98 12v 5sp, slightly damaged, in my garage that I'll sell REAL cheap right now... . :-laf
I just snapped some pics here is the carnage: damn kids LOL