Transmission? or TC? issue

Kinda a newb question...I've done many a tranny swap but somewhat new to the 4x4 (the XJ in particular).

First...I have a '91 XJ Limited
AW4 Transmission mated with a NP242J
SYE installed
Tom Woods DC shaft
C8.25 rear-end D30 front

Some time ago I developed an issue with my transmission/TC...not sure which but I could not get any forward or reverse gear and every gear I put it into gave me only a horrendous grinding noise like splines weren't quite engaging...just grinding together. I did have the 4x4 gears when I engaged them but it just went back the grinding and no gears when I went back to 2WD.
I had initially thought it the torque converter and changed it out with another from a transmission/tc I had pulled from a boneyard. Problem persisted.
Changed out the transmission. Problem persisted, but I found that I also no longer had any 4x4 gears but 4LOW. I checked the TC fluid level and found it fairly low so I filled it up and rechecked it. Still nothing but 4LOW.
I can't seem to wrap my head around this issue with all the other crap in my life and it's driving me somewhat nuts as I need this thing on the road (and off) very soon. :banghead:

I'm thinking it's an issue with the tc but I can't seem to nail it down. I need help...It's probably something really stupidly easy that I'm just not seeing but I can't afford to take it to a shop...I own an XJ. :laugh:

Sounds like the transfer case is stuck in Neutral

It's not in neutral...I do get 4lo. The linkage is set correctly too. They're both shifting through all the gears but the only one I'm getting to lock in is 4lo.

Transmission grinding on shift happens when TC is in neutral, because the transmission output is freewheeling (the drivetrain isn't stopping the output). Its like trying to shift into Park while rolling, the pawl is going to grind.

My guess is the transfer case isn't shifting properly. Might be something simple like broken/missing pads on the shift forks.

Just thought I would update as I didn't get a whole lot of answers (thanks for attempting ehall) from anywhere I looked, so I decided to pull the tc and have a look. I wasn't looking forward to jumping into something I hadn't attempted before. Turns out, it wasn't near as scary as I thought it would be...had the whole thing done inside of 3 hours.

Turns out the plastic sleeves from the lower shift fork were in pieces all over the case....as well as a large quantity of metal shavings from god knows what. It was a good thing I got the tc when I picked up the new-to-me tranny.
Pulled the rear output shaft from my old tc (the one fitted with sye) and slapped together the new one. Runs beautifully now and the new tc is 2 years newer.
Ah, the life of a poor mechanic...some day I'll be able to afford a STaK, but for now I'll settle for a used working replacement.

For the parts shelf: