This year the transfer case spins all the time, just no power is being applied to the wheels when in 2wd. Being speed dependent I think your looking at u joint in the front shaft or the CV joint. Clunking when shifting is normal, you should change the fluid in the case (60k intervals and use the same fluid that's in the trans).
I had a lower ball joint die at 12k when I ran over a rock the size of the wheel. So I know they are not durable. I also had to rebuild the front end around 100k (ball joints, tie, rod ends, wheel bearings, and shocks). These are just wear items that need to be replaced with every truck. I just did another wheel bearing and the tie rod end was shot again, now at 164k.
99 x-cab 4x4 4.0l auto
mods, cranked t-bars, silencer delete, k&n drop in, Rebuilt trans ,Trans Go stage 3 shift kit, 3200stall Fuddle Racing Torque Converter,
VANIR 63mm TB, Roush split rear exit exhuast, E-Fan, JBA Headers
Auto up/down both windows, OHC, EATC (soon to be modded)
03 Crown Victoria Police Interceptor