Ok, got it back from the dealer today. Had oil and tires done while it was in because it was time. They said that it is a worn gear in the transfer case and is ok to drive but will get progressively worse until failure. ...and quoted a price of $3,600 to replace it.

So, the only questions remaining... Does this sound realistic? Could losing traction in a few big puddles have caused extra stress that pushed a fragile gear over the edge...because otherwise this is a heck of a coincidence. And, how ridiculous is the price? I know it's high, it's a dealer, but is it laugh out the door high or 'just pay it' high?

Thanks!