Depending on the transfer case, they are cheap and easy to rebuild. (see my Vermont saga a few years back)
If it won't stay in gear then I would concour with Gary. It's the plastic shift forks..
Jim,
Lil'Red is a '87 F250 HD, 4.10's, 1356 4x4, Zf-5, 3G, PMGR, Saginaw PS, desmogged with a Holley 80508 and Performer intake.
Too much other stuff to mention.