I had a similar experience today with my '87 K5. I was about to go through a shallow drainage ditch with slow running awater about 4" deep. I stopped and locked my manual hubs, then pulled it into 4WD. As soon as I touched the gas I heard a loud bang and stopped and then saw red fluuid flowing down the stream. I backed out of the water and heard a lot of clunking noise. I got to where I could look underneith and that's when I saw the front driveshaft broken off of the transfer case. I was hauling a trailer off into the woods to pick up some hunting stands. As soon as I saw what it was I checked the transmission fluid and it was still OK so I unlocked my hubs and took it out of 4WD and kept going. I pick up one of the stands and took it back out on the main road and drove it about 12 miles, unloaded and drove back. That's when I got a hold of my local mechanic and he told me I shouldn't drive it anymore because there would still be parts still spinning inside of the case but now without oil. I parked it and am now calling a tow truck to get it hauled to his shop.
Q: Could I have damaged my transmission if I had kept driving it? I haven't gotten a good look at it to see just what all is broken.