Found small shaving of metal on the drain plug... Assuming this T-case is now junk.. Will pull inspection plate tomorrow..

 

My shifter thing will not go all the way into Hi gear.. I am underneath and it seems a little loose and is not fully engaged like the one in your picture..

How can I manually make it lock in gear from below??

All gears are lined up and look good.. I see no damage of any kind in there

 

Figured it out.. The dog callar shaft/rod was not lining up properly as we put the parts together.. I kept the inspection plate off, and used a pry bar to hold it in 4 High as we put it together.. Now it holding fine.. not going to shift it for a while.