'91 Dakota 4X4: Deal or avoid??

I've been looking for an old 4X4 pickup, and came across a 1991 Dodge Dakota on a dealers lot.
A few details:
177K miles
3.9 V6
Automatic - 4X4
Towing package
Decent Firestone tires.
You can see a photo of it here:
Pretty rough in person, but good enough for what I want it for.
Rust as you can see, also about a 4 inch hole rusted in the passenger door near the bottom. The box and all fenders are very good. Just a normal amount of dings. Don't see any rust under the floor and, what I think are the cab mounts look okay.
I tried it out today and it wasn't too bad considering its age and miles. Starts right up and runs down the highway decent.
Now the bad news: on a gravel road I engaged the 4WD. The noise is hard to describe..sort of a grinding/scraping type sound. The sound may not have been continuous.
It has the broken fuel gauge problem. The sender in the tank possibly?
Its Carfax report is unremarkable.
So of course I have some questions for those with much more 4X4 savvy than I have.
*If the transfer case or some other portion up front is shot, can I still use it safely in 2WD?
*I'm half way mechanically inclined (have changed axles on my FWD autos etc) so would replacing a transfer case be a major headache for me, besides being a learning experience?
*What would you offer a dealer for this? It's gone down from $1575 to its current price of $1275. I wouldn't care to invest much considering its potential problems.
This would receive minimal use, so it's not like I plan to commute with it. Just some local hauling etc. between tinkering with it. And if I could get the 4X4 working it would be handy in the winter too.
Sorry for all the questions over a worn out truck, I just don't have anyone here that I know of than can help me on a matter like this.
Many TIA for your advice!
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
Add image file

Motorsforum.com is a website by car enthusiasts for car enthusiasts. It is not affiliated with any of the car or spare part manufacturers or car dealers discussed here. All logos and trade names are the property of their respective owners.