On the contrary, when it is working well, it really does work VERY well. Remember, because of the gearing in the hubs and diffs the E brake only sees 1/6th the torque that the wheel sees (the wheel has 6 times the braking torque that the e brake disks have on them).the handbrake is lousy at the best of times
I also vote for the e brake as the most likely culprit, I was just pointing out other possibilities for similar symptoms. Loosen the adjusting nut on the e brake linkage and give it some percussive tuning

Not possible unless the transfer case is significantly hosed!Is it possible for the output shaft of a t-case to lock up, without other symptoms such as the front output or propellor shaft input also locking up?