Did you ever find out what this was? I have a '99 XLT with a 3.0L engine, 5 speed manual tranny. The owners manual says I can swith from 2WD
to 4x4 High at highway speeds, but I get the "grinding noise" you describe (I actually describe mine as a loud buzzing).
The interesting thing is that when I slow down (maybe less than 10 mph), I hear a solid *thunk* and it engages the front wheels. I've been chalking it up to a weak electric motor (whatever that thing is called that everyone needs to rebuild).
Is that what you experts think it is? Could it be anything else? 4x4 works great when it's engaged...just can't engage it over 10 mph or so.