I agree with your observation. A dry diff would have resulted in bearing failure and problems before a sheared knuckle.

IF the diff were dry, it would mean there was a seal failure or someone pulled the drain plug. I don't know specifics with that axle; however, most diff plugs are screw in...

A failure of the diff where it seized may or may not reflect back to the transfer case. Remember, if something does seize, the weak link will break.

I would think the weak link would be a u-joint before the T-case.

Sheared knuckle??? Not sure that would be a stress point.

I do know that when going through mud, steering is an issue and I have blown a power steering pump. That is cheaper than axle carnage.