1996 Ram 2500 4x4 5.9 gas, auto
I changed the fluid/gaskets in the front and rear diffs (no visible damage to gears).
Replaced broken snap ring in T-case, changed fluid (very little metal shavings) .
Jacked up front & rear and rotated drive shafts, no loose U-joints or what not.
When I shift into 4wd and only then I hear a faint popping/clunking on "rotation"
Any ideas? I'm hoping the T-case isn't trashed.

 

Are the shifter bushings on the transfer case shifter rods in good shape? If not, you could have slop in the shifting linkage, which could cause that type of issue. Try getting the truck jacked up and placed on 4 jack stands on the front and rear. Once the truck is jacked up and safely secured in the air, have one person shift the transfer case into 4WD while you look at the transfer case shifter linkage underneath the truck to ensure there is no slop in the transfer case shifter linkage.

 

Instead of saying "When I shift into 4wd and only then I hear a faint popping/clunking on "rotation" I should have said while I am driving in 4wd I hear the popping/clunking. I will try jacking it up.

 

Jacking the truck up and getting under it while its on 4 jack stands allows you to see what's really going on when its in 4WD. This really helped me to sort out 4WD transfer case shifting and noise issues I had a while ago.

 

Are you using 4x4 on a high traction surface? That's a big no-no.

Might be the chain in the t-case has stretched, and it is jumping teeth under load.

 

Check the front axle u-joints. Even if they seem good, they might be dry. Also, you could remove the front drive shaft and then try it.