transfer case problems?

[fannman]

So we had a issue. The car runs fine, but when I put it in gear and let out of the clutch it would start to grab and then the pedal could be fully released and it wouldnt budge. We took the slave cylinder off and tested it, it works just fine, and the clutch assembly is in check. So we started testing things. We put the car in gear, you cant spin the output on the transmission unless you spin the crank and everything. But when its in gear you can spin both output shafts on the transfer case. I did drain the fluid and put new fluid in. I also do know the vc is bad on the car. But could that have destroyed the tc completely? It drove just on the rear wheels before we pulled the motor and changed the fluid so it doesnt make sense how now it just gave out. Would a new vc fix that issue or am I in need of a used or new transfer case? Some input would be much appreciated.

Thanks

[spdracrm3]

so with engine running and the clutch is released in gear and the car is not moving is the output shaft from the transmission to the T-case spinning? if yes then problem is in T-case , if the trans output is not spinning problem is in trans or clutch