GM-GMC: 1987 GMC V1500 4WD 350/automatic, rear driveshaft, output shaft

Question
Replaced engine with 1990 350 engine and re-installed original transmaison. Drove 1,000 miles ok, then drive and reverse suddenly went. Put 4 wheel lever into 4L and got drive and revere back. Put back into 2H and lost drive and reverse agian. Would grind when atttemting to put in Park. Relaced both the trans and transfer case and stil have grinding noise which appears to be coming from the output shaft of thr transfer case.  Nothing happens when I put into Reverse or drive.

Any idea whaat could be causing this?

Answer
There is a snap ring on the output shaft of the transfer case that can fail.  If the noise goes away in 4-Hi, then the snap ring might have broken.
To repair, you remove the rear driveshaft and the tail housing from the transfer case.  If you leave the transfer case in 4-Hi, you can see the output shaft groove and check for the presence of the snap ring.
I have not had to do this on my vehicle, but I have removed the tail housing from a NP203 to convert it to part time four wheel drive.  The job was not difficult and the NP208 transfer cases are similar to the NP203.  I read about this problem and repair on another forum.  Knowledgeable transmission shops are also familiar with this problem and may be able to assist with the repair if you do not want to try and fix it yourself.