Scott, does it go into 'neutral' if you're in 4WD or A4WD mode? Only 2WD mode? Do you ever notice it not driving the front wheels when in 4WD mode?
If the transfer case motor lock is faulty, like I'm guessing, then you should have trouble with it not driving 4WD with full torque.
The other possibility is a loose internal component.
If you haven't read up here on the operation of the encoder motor, do it:
http://www.offroadtb.com/articles/tech- ... operation/