1999 Silverado 4wd Problems!! PLz help

Ok the other day my service 4wd light came on. So i decided to push my 4H button and it took me 3 or 4 trys for the 4h button to light up. Once it did it drove like it was in 4L and made a loud rubbing/grinding noise. Then when i disengaged the 4wd it jumped and made a clunk. Im getting the run around from the Chevy dealership here in alaska and their trying to charge me $$$$ to open up my transfer case and look around. A buddy of my dads is a mechanic at a chevy dealership and says he sees this all the time and said something about the encoder motor sensor going out? Well the dealership up here says they've heard of the encoder motor but not the sensor and they want to charge me 550 JUST for the motor when the sensor is only around 100$. Anyone have any expiernence with this sort of thing?? Thanks. [img]/forums/images/icons/mad.gif[/img]