Thank you for your response (and I figured this was the correct place to post it).
I am 100% sure it is coming out of the hose...I do not need to add an extension to make sure of that. Though, it will help in diverting the mess.

 

It just would be really odd. The fluid level is not even half the case capacity. To give you an idea, here is the transfer case. The line I made for fluid fill is actually a little high. You can see the fill plug the left. On top is the breather, just behind that flange.

 

Interesting when you draw up that example. Going to run hose this weekend and see what I can figure out.
Any possibility it's getting very very hot?

 

I am pretty sure there is a temp sensor within the setup, could be wrong. But if there is one and it gets too hot it would trip a "transmission too hot" message. And while it does have clutches, it would take a low fluid situation to really get it to overheat I would think.