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Lock the hubs, and leave the transfer case in 2 hi. Block the wheels and crawl under the truck and see if you can rotate the front drive shaft. If the hubs are good you will not be able to rotate the shaft more than about 1/4 turn.
Put a dab of paint on the front driveshaft, engage 2HI, and have an assistant watch the driveshaft while you drive a few feet. If the paint mark moves, the t-case is engaging the front shaft and your problem is with the diff and/or hubs. If the mark doesn't move, there's a t-case issue.
Lock the hubs, and leave the transfer case in 2 hi. Block the wheels and crawl under the truck and see if you can rotate the front drive shaft. If the hubs are good you will not be able to rotate the shaft more than about 1/4 turn.
Do just like he said but lock the t-case instead of the hubs. In 2wd, the front shaft should rotate freely in either direction. If you lock either the hubs or the t-case, the shaft should not rotate.
I don't know squat about the TTB in these 250's, but it's my understanding that the BW 4407 is an extremely stout transfer case. So I would say that its in your front end, but these guys have given you a lot of great trouble shooting tips to narrow it down.
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