The gear turns to activate the clutches. Until the clutches wear significantly, they will always engage at the same point, and that is where the gear wears out.

The serious problem is that it won't activate, but it will still drive in rwd. It doesn't break the transfer case, just stops it functioning.

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2007 X3 3.0si, 6 MT, Premium, White

Retired:
2008 535i, 6 MT, M Sport, Premium, Space Grey
2003 X5 3.0 Steptronic, Premium, Titanium Silver
2002 325xi 5 MT, Steel Grey
2004 Z4 3.0 Premium, Sport, SMG, Maldives Blue