Thanks for your thoughts and ideas.
When I first re-tightened the nut, I reused the same nut, as I was able to turn in enough to restake it in a new area. It's possible that the transfer case bearings are starting to fail such that the nut got loose. Obviously, the spline wear also happened along the way.
Because the splines are not tapered, there is no way to really ensure a tight spline fit, so any looseness immediately tears up the splines. I would argue these splines should be tapered, but they likely exceeded Toyota's expected design life.
I'm investigating a used xfer case, as a new one is $3100 from Toyota, and the shafts are either $800 or $200, and would require a teardown of the case.
If anyone has a low-miles (ish) xfer case compatible with a 5 speed '98 4Runner, I'm interested.
Steve H. - KE0KNH
Colo Springs, CO
'78 FJ40, '89 FJ62, '98 4Runner