Howdy! Background: About three months ago, I had to have my tranny rebuilt on my 2001 Z71 with a NP246 transfer case. Not long before that, I noticed that whoever had my truck before had put what looked like regular tranny fluid in the transfer case instead of the blue GM Autotrac II fluid, so I drained and refilled with the right stuff. I had also noticed that when I'm in 4-wheel drive and drive, say, 200 feet in lo and a few miles in hi and switch back to 2 wheel drive, it will "clunk" and the front will fall an inch or 2 like something was in a bind. Now: I started noticing a funny smell when I drove the truck that was strongest when I stopped and opened the driver door. I initially suspected the newly rebuilt tranny, but it just didn't smell like a burning transmission. I got under the truck and took out the filler plug on the transfer case to make sure it still had enough fluid in it, and noticed the fluid had a little silvery color and got some on my finger and noticed metal flakes. Do you think that funny smell was coming from my transfer case all along? Also, when you put it in gear, usually when you put it in forward after drving backwards or vice versa, it will go into gear, and when you give it gas to drive off, it will pause for a split second and then "clunk" and start moving. Can a problem in the transfer case cause that and the "falling" of the front of the truck like it was in a bind? This is my first 4-wheel drive. I'd appreciate any advice.