Transfer case grinds badly when engaging

[ttyR2]

I have a 2000 F-350 with the manual transmission and ESOF 4WD. 95% of the time, when I flip it to 4X4, there is a pretty bad grinding noise for half a second and then it engages with a clunk. A buddy who has a 2001 F-250 jumped a bit when he heard it do that and said it's definitely not normal. 4WD does work when it engages. What should I be checking to figure out why it's grinding? It does it if I roll off the throttle or even push in the clutch.