4WD problem. I think. When driving it seems like the 4WD is constantly trying to engage. The Jeep will jerk back like something is hitting the tire and make a loud band sound. When in 2wd the Jeep will not drive and makes a grinding sound.
I think your right, a 4WD Problem or issue with the transfer-case. I would check the linkage adjustment to make sure it is actually being place into 2WD all the way and not binding up on something. This would explain the grinding.