So, with the help of the Ford Rebuild document (the same one that GiJoe provided), I tore the 1st half of the 4406 apart. Overall, this case looks very clean inside. Looks more or less brand new.
I did find 2 possible reasons it was not coming out of 4wd:
1. It looks like the salvage yard hard removed all the fluid, so the two halves of the electromagnet setup were slightly rusty. With how close they sit, this may have been enough for the 2 to stick.
2. There are 2 springs that force the 4wd engagement collar away from the splined shaft. Basically, its a passive system that SHOULD force the collar off of the splined shaft if force is not put on it. In mine, I think these springs are slightly weak and were not causing the hub to completely clear the splines.
Either way, it looks like the T-Case is good. I did have one minor casualty during teardown: the speedo collar that rides on the rear output shaft was shattered. I believe this may have already been shattered when I pulled it apart, and I didn't find the little steel ball (although I did find an extra one somewhere, so I'm thinking this might be the right one).
Overall, it looks like this T-Case should be AOK for a rebuild. Now I'm going to put it back together, clean up the outside of the case, and then do a rebuild diary on this bad boy. I'm going to go ahead and replace all the bearings, bushings, seals, etc, as well as the chain (while I have it out and apart). So, keep an eye out for that if your interested.
Thanks for all your help guys!