What the Inside of Your Diff Should NOT Look Like...

So I'm taking apart my '00 Nissan Xterra due to its recent failure to be shifted into 4WD.  I am going to be replacing the front and rear diffs (going to 4.9 gearing from 4.6) and also replacing the transfer case and going to one from a '98 Pathfinder which is a bit stronger than the stock Xterra version.  I believe this is what they call a catastrophic failure....the truck had 133K miles on it, of which about 10K-15K was done in 4WD.  I had NO idea that this had occurred as it ran in 4WD just fine all winter and I was in the process of doing some mild exploring.  I just went to throw the truck into 4WD and there was nothing there...just acts like it was in neutral and wouldn't send power to the front or rear...