Re: how to tell if transfer case is bad
Well, I'd be willing to bet that its not the differentials....You'd know if they're slipping, because they'd make a BUNCH of noise. Trust me, I've broken teeth off of 2 different gear sets in a GM 10 bolt, and they didn't slip, but they made plenty of noise.
The transfer case is unlikely to be the culprit either. As stated earlier, there aren't clutches to slip. There is a chain that drives the front propshaft / differential, and if its slipping, again, you'll know (it'll make a BUNCH of noise too) because it'll be jumping teeth on the sprockets.
The only possible culprit in the transfer case is the viscous coupling. If it completely failed, it might give you that symptom (rev to 5500 while in gear). However, I would expect it to be a complete loss of drive all of the time instead of intermittent, because the typical mode of failure for the VC is usually to lock up all the time (basically making it a 4Hi box instead of an AWD box) and to be completely unlocked at any time would require a loss of a portion of the fluid in the Viscous Coupling and that wouldn't be particularly intermittent.
I'd still suspect the transmission. Stock, these trucks break transmissions with relative ease, but stock transfer cases have gone into the 9's (and I think 8's). It also has components that would fail in just the manor you're describing (ie clutches that activate by hydraulic pressure, and too little pressure = slipping clutches).
Just my thoughts
'JustDreamin'