Well, it turns out it's NOT the transfer case as suspected, it's the transmission. Trans. shop informed me today that the cause of the sound was a chipped tooth on the planetary gears. He's about 95% sure that is the problem as it only makes the sound while in first and goes away when shifting into second.
Here is my question: Which model trucks have the 700R4 in it? I have a good friend who has a towing business where I can get what I need dirt cheap...but I have to yank it out myself.
Once again, it's a 90 Suburban V1500 4X4.
Thanks for the help!! Don