Transfer case bang seemed to turn into a grinding noise?

It started making this obnoxious banging sound from somewhere underneath the vehicle. I was thinking the rear end, but I pulled the rear diff cover off, and there was some pitting on the spider gears, but no broken teeth, metal shavings, etc. I pulled the front driveshaft, and the noise was still present. The only time the noise seemed to go away was when I had the rear wheels lifted off the ground. I only drove it a short distance, and the bang seemed to turn into a grinding noise. Well eventually I heard a pop, and now the truck won't move in gear. It will shift through all the gears, but it just revs up like it's in neutral. When you shift it into park, there is a horrible grinding noise, and the vehicle doesn't want to hold in park. There is a Rattle coming from the transfer case. It sounds like change in a coffee can. I'm assuming something broke internally. I don't know what else could have happened. Thanks for the input.