Yes, I am confident it is originating in the transfer.
When I put the transfer together, but before I attached it to my L52 transmission, I tried ``testing it". I shifted from 4Hi to 2Hi and it pushed the front transfer bearings out. It would then make a similar clicking sound. I assumed that this was simply because the bearings were not retained, but perhaps I caused something to become unmeshed? Is this a no-no?