I replaced the gear in the Transfer Case Actuator. AWD working properly again. Thanks Xoutpost for the wealth of info!

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2005 BMW X5 3.0i (Current)
2000 Toyota 4Runner (sold in 2011)
Formula 1000 - Van Diemen/Novak (sold in 2011)
1989 635csi (sold in 2008)
1985 BMW 325e (sold in 2006, but never forgotten)