Sounds like a broken flex plate. The tranny needs to be dropped to replace it, but that's a whole lot better than a trashed tranny!

Its happened to several people on this forum:

http://www.4x4wire.com/forums/showflat.php?Cat=&Board=UBB78&Number=683844
http://www.4x4wire.com/forums/showflat.php?Cat=&Board=UBB78&Number=230067

Scott's thread has some pictures:
http://www.pirate4x4.com/forum/showthread.php?s=&threadid=102868


'97 4Runner, '06 F350, '86 4Runner, '05 WR450
http://home.4x4wire.com/erik