It sounds like it could be a bad kneuter valve in the muffler bearing lubrication system causing it to jump synchronizers when there's a lack of torque on the front driveshaft. [img]/wwwthreads_images/icons/smile.gif[/img]
Actually, the NP203 is a full-time transfer case. I'm not 100% sure, but I think that the front end still has to be locked in, even when you are in 2WD (note, your problems started after you disengaged the front axle). If your front end is unlocked and you have the t-case in 2WD, I think it's pretty much the same as having the unit in neutral. Lock the hubs and you might be alright in 2WD??? Somebody else more knowledgeable about t-cases might be able to help more.
<font color=red>TOO MUCH POWER</font color=red> isn't enough.