Well, it could be the front drive shaft, the chain in the transfer case or the rear drive shaft.
I still have the metallic clicking sound in the conditions described above. I replaced the front drive shaft with a longer shaft, the chain and even the transfer case and click is still there. The splines are perfect. One indy mentioned that the clicking sound comes from the rear driveshaft.

I though it was usually the rear that crapped out first. Something to do with the AC drain right on the splines.

Right, but that's the front drive shaft. The AC drain pipe is above the shaft connection to the TC. Water get's in and rust forms on the splines. Mine had this problem and I replaced it before to damage the TC with the longer shaft.
The clicking was still there. Then I replaced the chain and TC and I still have it. I guess a mechanic who experienced all these noises could probably tell but in my case I was convinced the problem was solved by replacing the front shaft.
Before to replace the chain I talked to the indy who pointed to the rear shaft, he also mentioned that's a common problem.

I have the two mixed up then. I was still pretty sure the rears suffer this way more frequently based on the forum posts.

My front drive shaft went at 115,000 miles. I didn't listen to my X5; it was making a clanking sound only when I put it in drive or reverse. The warning "clank" went on for about a month or so...then one day, while turning off the freeway offramp and slowing down before a stop light, things just went south. Luckily it did not happen while on the busy freeway.

Extremely Loud gear grinding noise and vehicle became immobilized. Engine runs find but no power to the wheels. I thought the transmission blew. Had it towed three miles to the house.

The front drive shaft splines were shot. Replaced it/DIY with BMW OEM shaft assembly for about $800.

I'm sure the splines inside the transfer case will be next. They were worn down a little, too. Currently at 122K miles and counting, so far so good.

Just received my 01 3.0 (124k on the old clock, 0 on the new clock) back from getting a new engine and now there is this clicking sound from the transfer case area. After reading all these posts, i concluded it was the rear output flange that was stripped. Especially when i noticed that there was a 3/8" area that almost appeared to be milled. Guess what...the new one is exactly the same.

Can the chain be slipping inside? As always, the X didnt have this issue going into the shop, just coming out. Just my luck.

Any input would be appreciated. Long time lurker, first time poster.

After digging more into it tonight, i am more convinced that it is the front driveshaft splines.

Is it normal for the transfer case splines to wear down before the driveshaft splines do? I can see no wear on the drive shaft splines but I can see indentations on the TC splines.

since the OEM shaft only engaged the TC splines by about an inch, would that new 1" longer shaft from cobra be enough to engage the untouched part of the TC splines?

Yes it will. Lost have gotten the longer shaft

Cisc0 didnt you learn from the chicken bucket on the highway not to let your fooking wife drive the X! hahah

I actually should have learned from this since this was back in August of 2012 and the chicken bucket was 3 weeks ago.

To Texasgreenhead, about the longer 1" shaft (pause ;)) yes the longer 1" shaft from Cobra Trans allows the use of the "un-used" splines in the TC sprocket.. but.. the job is more complicated since you now have to remove the rear shaft, and loosen up the TC in order to fit in the longer shaft after you have mounted the center flange and the guibo. So if your wrenching skills are up to par, then load the sum'bitch onto four jack stands and go at it. While you're there do a TC fluid change.