There are no tranny gears in the transfer case or extension. The extension/adapter also has no gears in it, just the tranny shift rails. Both the tcase and the adapter/extension bolt on and off easily. I think you have a failed tcasebearing or chain. Buy a tcase and bolt it up. You have to drive out the roll pins in the shift rail fittings just under the shifter, and don't lose them down in the tcase. A magnet is handy to catch them as you drive them out. Also, when you drive them back in, do not let them protrude below the fitting, or shifting will be blocked. The manual is quite complete on this job, except for the above.

Note, the speedo must be driven by the tcase output shaft, or it would act like a tranny tach instead of a speedo. It has to be driven at driveshaft speed.

The gears you see in the shifter hole are the tcase reduction gearset, not tranny gears. If they are chewed up, you found your problem. Metal from the gears has fried the bearings and causes the resistance.

You do not need to remove the extension/adapter, and it should be dry inside. If not, you need to replace the tranny rear seal, and the extension housing should come off for access.