Transfer Case Problem?

Its been a while since I've been on here so I hope I have this in the right area. I have a '97 Explorer with the 4.0l ohv the 5R55E transmission and the Control Trac 4x4. The problem I'm having is I believe that my transfer case is going out, when I put it in reverse it will act like it slips out of gear but the transmission shifts fine but in reverse it will grind and act like its not in gear. I will quickly get it out of reverse (ether N, D, or P) and put it back in reverse and its just fine. When I'm driving down the road above 25mph and I let off the gas to slow down it will act like there is no engine breaking and will be grinding. I have trouble shot where the grinding is coming from and it sounds like its coming from the transfer case. Now what I'm wondering is if it is the transfer case what would be broken and causing the grinding noise?

Typical transfer case failure points would be: shift fork/pads, case ovaling/wear, HI-LOW range slider stripped. If you find the transfer case rebuild diary, it has photos, part #s , everything.
http://www.explorerforum.com/forums/showthread.php?t=182071

I have looked through that but with how slow my computer is I can only get about half way through it. but from I have gotten from that and the other threads I have gone through I have found out so much info on this transfer case. I do want to tear into my transfer case but until I have at least a back up one I have to deal with it right now cause its my DD. Another question I have about it when it comes to the 1345 tc swap I have looked at a lot of info on it but the only thing I have yet found out is when it come to wiring up VSS on how easy it is cause I would like to go to the manual shifting transfer case.

Now because of the problems with my transfer case I can no longer go into reverse, I would really like it if someone could tell me if the vss from a 1345 wire right in to the factory wiring of if I could use the vss from the 4405 in the 1345 with no problem. This explorer is my DD and cant have it down.

Sorry about the confusion in my messages. When I was talking about the 1345 I really was talking about the 1354. I get my numbers backwards all the time.