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First you say its AWD, then you say it is 2WD, which is it? Does he have AWD (all wheel drive), A4WD (Auto 4 Wheel drive) or 2WD? If he can select "Auto" he has A4WD.
The A4WD system uses electronic controls to automatically switch on the front as needed.
The 2 wheel drive truck naturally has no front diff or associated driveshaft, so clunking noises would probably be a transmission mount or engine mount.
The AWD system is not electronically controlled where you can have 2 wheel drive. In fact there are no controls on the AWD system. It is ALWAYS there, ALWAYS on. The power/tourqe is sent from the engine to the transmission, to the transfercase where it is split 65% rear, 35% front. The only way you do not have tourqe/power sent to the front is if you removed the front driveshaft or had a transfercase failure.
I suspect the "clunk" he hears could be that his front driveshaft needs to be replaced, but there are other explanations.
None of the '97 A4WD or AWD trucks had auto-hubs. They have a combination bearing/hub. The cv/axle transmits power from the front diff to the hub/bearing, the wheel bolts directly to the hub. When they go bad they tend to make alot of grinding/groaning/squeaking noises.
You have A4WD (auto 4 wheel drive), not AWD (all wheel drive). The computer on your truck monitors the wheels speed sensors to determine when to engage an electronic clutch in the transfercase, thereby splitting the available tourqe between the front and rears. This clutch and the computer monitoring does not exist in the AWD trucks.