4wd MANUAL shift issue

Hi all,

I have a 1990 Bronco II with BW1350 manual transfer case and its been acting up since i bought it. Heres what it does with the transmission in neutral.

2wd = dash light lights up "4x4"
4wd = stays "4x4"
neutral = light goes out
4wd low = lights up "4x4" but not "Low Range"

So I decide to drop the t case and I remove the rear driveshaft first (which spins an 1/8 of a turn counter clockwise after removing the last bolt at the diff).
Then I try shifting through the gears again and all the lights go on or off as they should and even the "LOW Range" lights up when in low.

Whenever I turn onto a street I also get some kind of binding in 2wd. I turn and try to accelerate but the the truck just doesnt go and after about 10-15 seconds theres a loud "pop" in the driveline and I am able to drive it again normally until I have to turn again.

I dont know how many miles are on the truck or the t case.
Its leaking fluid at the transmission housing extension and looks like it was rebuilt before.
I have cleaned the plug on the tcase that signals the light on the dash and there are no electrical shorts in the wire.

Sorry about the long post but I am out of ideas. There are alot of posts about the electric motors on these 1350s failing but nothing about the case failing or problems related to it. The light I could care less about but this binding is driving me crazy, its basically not driveable, and I think the binding and the light issues are related. Ive been trying to figure this out since august and I have no idea. PLEASE anything will help!!!

heres the light I was talking about

heres the original driveshaft

and the one thats on there now (had binding issue with both driveshafts)

It sounds like the shifter gate may just need to be adjusted, it might not be allowing it to go all the way forward into 2WD.

thanks, i didnt even know you could adjust it but i just tried that and still didnt work. im just gonna trash it and find another. think i should just stick with the 1350 or is it worth 3 times the price to get a 1354?

nm, im gonna stay with a 1350

It definitely sounds shifter-related.

1350s are pretty easy to find, so getting another might not be a bad idea.

The t-case is pretty simple inside though, couldn't hurt to pop it open and see if there's anything obvious as to what's causing it (worn/missing wear pads on the shift fork maybe).