Transfer Case Noises?

Ok I have a 2001 chevy silverado, 110k miles, with the 6l vortec. The other day heading home from work, a god awful grinding noise came from the front of the truck, and all of a sudden, I'm going no where. Luckily I coasted across the train tracks. Sat there for a bit fiddling with it, putting it in 4wd out of 4wd nothing. When you would put it in gear made the same grinding noise and wouldn't move. Finally got it towed home, checked the fluid in the transfer case and it's fine. Pulled the pan from the transmission and the fluid looked pretty black. So my question really is, would it be the transmission that died on me or the transfer case? And the other question would this happen just all of a sudden out of the blue? Makes no sense to me, drive this thing every day and have never had any problems with it, pulling my hair out trying to figure it out! Any help would be greatly appreciated!

I don't know if I'm completely convinced that it is the transmission. The fluid that came out definitely looked bad but not big chunks or really any shavings in the pan to speak of. And it didn't smell burnt at all, it just looked old, plus as far as I know that same fluid has 110k on it! The grinding noise is really what gets me, I've driven Chevys forever and lost my fair share of transmissions and have NEVER heard any grinding noise like that! That's what makes me think it's the transfer case. Today I changed the fluid and filter in the tranny, and it will go into gear, and move, just not very well, almost like the tranny is slipping but if I goose the throttle it's almost something catches and it wants to take off like it should. I took the encoder motor off and manually put the transfer case in gear but I'm only getting 3 positions out of it, should have 2wd, 4hi, 4lo, and neutral, so one of those isn't working, and it's definitely not neutral. I had to pull the front driveline to get the encoder motor off so it's pretty hard to tell if it's actually going into 4wd or not. Anyhow that's what I got, I would love to figure out which part is causing the problem as it's pretty damn expensive to replace the tranny or the transfer case and I would hate to change the wrong thing and be out that much money to have to turn around and replace the other one as well. HELP!

Thanks for the shotty advice, it was the transfer case