[ryanroo]

it appears as though the front output is sending power to the axle. somewhere in the axle is a gremlin. first step would be to check the hubs. i cant tell if the front axleshafts are spinning from the video. if they are, i would blame the hubs.

to install manual hubs, just pull the auto hubs out and install the manual ones. removing hubs is pretty basic, but if you are in need of direction, i can try to post some pics if i can find them.

running the hubs locked and case in 2hi is no real concern if all moving parts in the front axle are in good order. the tires will drive the axle and cause everything to spin.

running with the hubs unlocked in 4wd is the same only in reverse. the transfer case will drive the axle, but not the wheels. so either is mechanically OK as long as the moving parts are in working order.