I agree. It seems like the pump is done in my transfer case. I found a good write up about how to rebuild it but I'm wondering if not having a working pump in there for who knows how long will have damaged the internals. I didn't notice any metal in the fluid that I drained but it was very black colored. Ya'll think its worth the time to rebuild it?

 

Only one way to find out... Take it apart!

 

Ok, I pulled the transfer case out, got inside of it and found that the pump was totally destroyed. As a consequence, one of the gears that was supposed to turn freely was VERY reluctantly turning. I have ordered a seal and bearing kit and a new pump assembly from American Powertrain Warehouse so I should be back on the road soon.
Thanks a lot to everyone for the help!

 

Cool!
If you can, please provide pictures! Pictures make everything better, including when you rebuild this transfer case.

 

You're going to need to do something to fix the pump spinning. Thats likely what caused it to fail and cascaded from there.

The way the pump is retained in the case is just a rib on the casting that the pump wears through. When I had my transfer case open for a linkage problem, I found the rib half worn through. If you have a welder, you can modify the end of the pump retaining piece so it pushes on more of the rib surface. See the link below on how to tear it apart and fix the pump issue

Otherwise its just going to happen again a few miles down the road...

Rebuild your own transfer case. BW1356 - Ford Bronco Forum

 

BTW, I've always heard that the reason the pump starts spinning in the first place is someone using gear oil instead of ATF in the transfer case. ATF pumps, gear oil is too thick.

Now that you are repairing it, tecgod has a good point, and making sure you use the correct oil will definitely help prevent future problems.

 

Thanks Tecgod, I found that write up and have been following along with it as I take my t-case apart. I'm planning on welding the little bar on there to fix the worn out groove in the case.

 

not true. my 88 had ATF from the dealer, and i changed it at 100,000 miles. just before 200,000 miles the pump imploded causing my T-case to self destruct.
when i took it out of the truck it still had ATF rite to the full line.