Make sure you engage and disengage 4WD on loose surfaces. DO NOT drive for any distance on bitumen/concrete in 4WD or you will get wind-up in the tcase, making it difficult to disengage (as you found out).

The smoke would have been coming from the tcase (I'm assuming) under the vehicle, and not the "diff" (unspecified) and that is EXACTLY the problem - we do not have a center diff to even out the rotations of the front and rear driveshafts so they are fighting each other when you turn corners where the front driveshaft turns quicker than the rear. In out tcase this obviously causes HUGE internal loads in the tcase, and has been known to destroy them.