Ok did a little research in hopes of clearing up the confusion for posterity - Hope I got it right.

The high-low clutch hub sits on the transfer input gear, actually on a shelf cut into the input shaft. There is also a shelf cut into the inner diameter of the transfer input gear that the clutch hub sits in, not on. This shelf should essentially match the shelf cut into the shaft when the gear is placed on the shaft. The depth of the gear shelf was cut to deep to match the shelf on the shaft therefore there is play between the clutch hub and the input gear and thus the subsequent noise/tick/rattle.

Dale