Truck wont move just makes a griding noise
 

HI,

I have a 2004 Ford Ranger that will not move and looking for suggestions on what might be going on.
Truck is 4x4 with manual 5 speed transmission.

The truck was driving fine...I was driving home from work, stopped at a stop sign and down shifted to 1st gear. I let off the clutch to get going again and it sounded and looked (the shifter moved) like the truck just popped out of gear and then I heard a grinding noise and the truck will not move at all. I tried gears 1-5 and reverse and it does the same thing...no movement, just a grinding noise until I push the clutch back in. I originally though I just broke the rear u-joint so I put in in 4 high to see if I could get it to move with the front wheels, but it does the same thing- grinding noise with no movement.
Another thing I noticed was that the speedometer was moving up with the RPMs when it was in gear and I let out the clutch.
When I put the truck back in 2wd / neutral so I could try to push it off the road I noticed that it would roll for a few feet and then it felt like the wheels locked up. I had to unhook the rear drive shaft to get it to roll freely.

I am just trying to see if someone that has more mechanical experience might be able to help me pin point where the problem might be before I tear into it so I know what I am getting into.

I was thinking it could be the transfer case or the transmission, but at this point not sure how to limit it down to one of the other. I figured since the noise goes away when I push the clutch back in, that might confirm the clutch is engaging and dis-engaging properly.

Thanks in advance