Hubs won't lock and transmission problems

[Yetti]

<BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR> Forgot...the front half-shafts can be seen spinning by looking behind the front wheel if it's turned slightly. <HR></BLOCKQUOTE>

This is not normal!
you would have had to have sheard a spline shaft or twisted the shaft till it popped a clip and then backed out of the CV Joint at the wheel. the CV is what holds the hub compressed, its splined through the center of the hub and bolted solid. the noise you were hearing while shifting was from not putting it neutral and waiting for the gears to shift in gently. I have busted transfer cases by being in a rush.
as for the HI/Loc function, that is done inside the transfer case no where else. there is a planetary inside that "gives" between the front and rear axles, it locks that & then makes the power split 50/50. sounds like it was spinning a wheel and then grabbed pavement snaping a shaft off at the hub.