noise in the transfer case,how can i check it out to see what the problem is

 

Since you already know what the problem is, I guess removing and replacing it would be the way to go. Could be the chain needs to be replaced, but I suspect the damage is worse than that.

 

do a search on snap ring. its a common problem to break the snap ring on the output shaft which leads to a grinding noise. its fixable by removing the tail shaft housing.

edit. welcome to df. if you haven't already done so, download the 01 service manual here.
most everything is the same as your 98, except some of the wiring diagrams.
http://www.rm-indy.com/wavefiles/2001ramsrvcmanual.zip