1992 Discovery 2.5tdi Transfer Box or Diff ???

I posted a question relating to a cv joint a while back as all symptoms pointed to it until my mechanic got a proper look at it. Turns out it's the transfer box 3rd wheel what ever that is, talk bikes and i'm fine!! He removed the front drive shaft and said it would be fine to drive in 2 wheel drive and there would be no problems. My very first drive down the motorway and there was an almighty grinding and wineing noise out of it and i could feel the vibrations through the gears. I was in main stream traffic at rush hour so had to continue driving for a few miles, i was all set for pulling over when the noise stopped - well it sounded like what ever was grinding had just been ground to dust!!
Was he right in what he did or did he royally mess up somewhere, has he added to the problem or is this a common fault? I take it I need a new transfer Box now or is it Diff or both???
All help would be gratefully appreciated before a fork out a shed load more cash.. or is it can of petrol and a match time?? lol