Replacing the gear is an easy fix. 'flipping,' e.g, rotating the gear to wear it in a different place, likely not enough. I rotated mine and a month or so later pulled the transfer case and replaced the gear. No problems since ......
These vehicles are 10+ years old. No way I put $4k into replacing what almost certainly isn't needed. Get it properly diagnosed and you'll likely find all you need is a new gear.

Yeah, I think I can manage to pull it off myself and sort the gear. Anyone have a part number handy?

BMW doesn't sell the gear. There are aftermarket versions like this

http://www.amazon.com/Transfer-Motor.../dp/B00H2TD5IQ

David has flagged it for you. The toughest part is prying open the case to get to the gear, after you have your vehicle up on a lift [or ramps, and accessed the case on a crawler] and pulled the transfer case. Good luck!

Well, I ended up doing a Transfer Case service. It was pretty sludgy and ugly after 120k, and there was also a leaky transmission seal. Also replaced front bushings, as one was torn. Hopefully with having the valve stem seals done a couple years ago, and this, I'll get another 120k out of it. Under 2k for everything. Thanks all for the guidance.