So heres my issue.. While driving my truck between 20mph and 40mph and hit the brakes there is a fairly loud grinding noise coming from under the cab. I have crawled under several times and cannot find anything under there to suggest any issues. It appears to be coming from the transfer case. Anyone have any ideas as to what could be?

Yes, I had the exact same problem with my 03 gmc dirty... Its called transfer case pump rub... this happens because the transfer case pump is made out of aluminum and your case is made of magnesium... gm inserts a small peice of spring steel to accomodate for the slight play in the pump. But after a 100,000 miles or so this spring steel wears out and falls off, therefor wearing a pinhole in your case, the pump then pumps out all your fluid and it toasts all your bushings in the t-case... i fixed mine already... if you go through Merchant Automotive they have all the right parts to fix it. you'll need the neww bushings... the gears that you have benn hearing grinding, and all the necessary gaskets. If you call Merchant they have more than enough advice for you... they were very helpful and have dealt with this many times before..

pump rub is not going to give you a grinding sound when you apply your brakes. Have you pulled your brakes too see what they look like ?

pump rub is not going to give you a grinding sound when you apply your brakes. Have you pulled your brakes too see what they look like ?
x2

No leaks coming from anywhere under the truck. Pulled the brakes apart the other day, they looked fine. My uncle rode in the bed of the truck and listened for the noise and now he seems to think it is coming from the rear end... So I think we are going to pull the pumpkin cover and see if we cant find any metal shavings. Oh the excitment! haha. Ill ket you know what we find.

I'm sorry jettech... but ur wrong... check your t-case fluid... guarantee u have no fluid in it. its your gears making the noise because they're walking around on your 4whl drive shaft... just check the fluid. trust me

Pump rub, in and of itself, will not make any noise, BUT, continued driving with no oil in the Xfer case (from the resultant "pump rub" hole and leak) will cause a grinding sound, followed shortly thereafter by erratic speedometer operation, followed by ABS lamp illumination at speed, and eventually, the transmission will not shift correctly (due to the lack of a speed sensor signal).

what did you find out
?

I'm sorry jettech... but ur wrong... check your t-case fluid... guarantee u have no fluid in it. its your gears making the noise because they're walking around on your 4whl drive shaft... just check the fluid. trust me

My gears and fluid are fine, trust me. I'm not the poster with the problem. And I still don't believe it's his t-case.

Sorry for the delay I was away for a few days on a fishing trip. Its not the transfer case, or either differential.... The level in the transfer case was fine and the fluid was clean. Back to tear apart the brakes again tonight I guess. Then who knows from there...