the front end grinding has nothing to do with the ABS and Brake Lights. that's most likely one of the speed sensors, either the one in the top of the rear diff (most likely) or the one on the trans/t-case tail housing.
the front end grinding could be the t-case, or the diff, or the CAD coupler. most likely its the CAD. the best way to debug it is to put it up on 4 jack stands and crank it up. with an assistant to hold the brakes and operate the shifter, you can better tell what its doing, and where the noise is coming from.
read this whole thing.
then test your 2 vac lines at the cad.
should be strong vac on one in 2wd and strong vac on the other in 4wd. without this, it won't work.
once you have vac, move to the CAD itself and take it apart and check the shaft for rust/sticky. its not overly complicated and usually just needs cleaning. finally check the sliding coupler that it easily moves from side to side and over the inner shaft to couple the 2 axle halves together.
the most common problem is a cracked or missing vac line between t-case and cad. easily fixed with new rubber line.
if you've got vac, and don't want to take it apart. shift it like this..
slowly move forward or backward and give the coupler a chance to slide into place.
clacking or grinding is bad... so go easy.
when you get tired of working on it, get a posilok manual cable.
it took me about a year and two different fixes for me to get tired of it.