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If your truck has full time four wheel drive, it should be an NP203. The shifter grinding is probably the result of loose/worn or out of adjustment shift linkage. Very common. It could also be that years of accumulated dirt and debris has gotten into the shifter causing it to not want to engage. I would remove the boot on the floor and try oiling the linkage from the top and then crawl underneath the truck to get to the rest. Try that before adjusting anything and report back.
are you sure youre in neutral with the truck stopped? if your in neutral and stopped nothing in the trans should be turning. ive shifted a 205 from low to high while going down the road but not so sure on a 203read this it might help you understandhttp://forum.73-87chevytrucks.com/smforum/index.php?topic=28236.0
if you leave it in gear and put the t case in neutral the trans will spin as if you took your foot off the brakes but what type of front hubs do you have OP