There is probably nothing wrong with the transfer case- the New Process 203s
are just a REAL BITCH to shift and the linkage rods inside can be stripped
if you really force the shifter.

When I first bought my truck 10 years ago I thought mine was frapped too, a
logger friend hopped in and it actually shifted like silk for him, whereas I
hadn't been able to get to square one with it. Admitted I still find
occasionally mine will lock up in 4WD and it can be a frustrating experience
to release it.

I replaced my NP203 once with a Lo Miles rebuild,( 3 man job to lift and
bolt in), it was exactly the same to shift as the original, I had wasted my
time and money.

If the driveline is stock it's probably a full time 4WD (No manual Warn
hubs on front wheels) and will cost you about 1-2MPG over a selective part
time 4WD (with manual or automatic hubs) to run.

First of all, lube up the exposed linkage on the upper right side of the
transfer case, check to see that the linkage is adjusted correctly and that
the plastic bushings are not worn through, there are two holes in the
shifter linkage frame that a drill bit should slide through frame-linkage
and other side of frame when adjusted correctly in neutral 2WD

Once that accomplished, FIDDLE with the shifter while you reverse at least
50 ft., foreword a similar distance, all the time the vehicle is moving you
are trying to gently bump it out of 4WD, when the driveline torque is
eventually eliminated it will POP out. My 78 chevy3/4 ton (same transfer
case) has always been FUN, sometimes I speedshift from HI to LO 2WD
sometimes I have turn the engine off and crank the starter to get it into HI
or LO, sometimes I have to HOLD the shifter into 4WD-LO over some washboard
before it will stay in 4.

You can remove the front driveshaft and leave it in 4WD,that will work, but
if you put it into 2WD the planetary gears in the transfer case are unlocked
and the front shaft stub only will spin, and the rear driveshaft will not
turn.

In order to convert the New Process 203 to part time 4WD you have to buy a
kit for the transfer case differential and install the locking hubs on the
front axle. Warning though, with the NP 203 converted to part time it
doesn't get full lubrication and MUST be run once every 1000mi or so in 4WD
to give ALL the bearings a good splash of fresh oil.

Remember keep fiddling and fiddling with the old bugger and it will probably
surprise you by complying.
Those NP203s were used by Ford, GM, and Chrysler, they are lying around
allover the country, worth about $50.00 - if you can get that much, (do you
want one?)
and you probably know someone (farmer, hunter, logger, etc.) who knows these
200lb cast iron beauties well enough to give it a good "talking to", after
that, you just practice till you figure out what it likes and doesn't like
to do.

If it's truly locked up you might try jacking up one wheel, get someone to
apply shifter pressure while you rock the wheel back and forth, there may be
water inside and the dogs could be rusted to the shaft.

                          Let us hear how you make out.
                                              Spud