2005 jeep liberty crd (diesel) 4x4- problems

howdy , yall.... i've had my jeep for 2-3 years. it's the first 4x4 and the first diesel i have owned. i really like it , but when i use the 4x4 full-time , it will make a grinding noise as i turn - then the awful sound stays until i take it completely out of 4x4 and back up quickly for 50 or so feet (i guess like the older 4x4's used to work).....then i have to drive a bit more. i had the bushing for the front rack and pinion steering replaced yesterday - and while it was being worked on, i had a look under it closely. the cv boots appear fine and everything else is encased in metallic housings. we did notice, however, that the axels turn into the transfer case as we turned the front wheels manually ( is that supposed to be like that ?) ..... what gives here ? i dont wanna screw up my 4x4..... dont know where to start. please help me out here if you have a jeep liberty 4x4.... 2005-2006 liberty crd even better.....
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