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The same thing happend to my friend in idaho. He has a 2003 third gen with the manual shift transfer case. It jumped into 4wd while the automatic was shifting into overdrive going 50-60 miles a hour. Exploded the transfercase and put a hole in the transmission bell housing. Dropped a driveshaft on the freeway which hit a car behind him. Huge expensive mess.

I believe there was a recall for these trucks because the transfercase was too easy to shift causing these problems.
 

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That may be the story he told you, but I doubt it lol. I have an 03, and that's just not very likely...A more likely scenario was he tried shifting on purpose at the wrong time and grenaded it, that they will do.
I find that highly unlikely, his truck makes 600 horsepower on the highest tune and possibly the poor transfer case couldn’t take it all. The transfer case was very easy to shift according to him.
 
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