I googled the problem and see the following post which is exactly what happen to me with the noise rubbing. The only thing is I hit a pot hole and then had the fluids in the transfer case come flowing out. I also had double the miles on mine I am at 150,000

At just over 72,000 miles my 2005 Escape Hybrid AWD rather suddenly developed a rubbing-type noise that the Ford dealer first diagnosed as a faulty wheel bearing, but then on closer inspection decided is a bad bearing inside the transfer case. They say the fluid in the transfer case is contaminated with metal particles, and the transfer case must be replaced -- at a cost of $1,672 plus tax.

I've been around, driven and worked on cars for nearly 60 years; and I can think of no explanation for failure of a transfer case bearing, sealed inside the case and constantly bathed in lubricant, other than faulty design or a faulty part. It wouldn't have been a big surprise 50 years ago, but it just should not happen these days. I've made that argument to the Ford dealer, and further argued that the transfer case is part of the transmission, and should be covered under Ford's warranty on hybrid components; but they say Ford hasn't done a recall for the problem, and the transfer case is not "specific" to the hybrid system, so there is nothing they can do for me except put in a new one on my dime. Given this and a couple of other engine problems I've had with this car, I've concluded that Ford hasn't perfected its hybrid technology yet, and I'll be shopping other brands next time I go out to buy a car.

At just over 72,000 miles my 2005 Escape Hybrid AWD rather suddenly developed a rubbing-type noise that the Ford dealer first diagnosed as a faulty wheel bearing, but then on closer inspection decided is a bad bearing inside the transfer case. They say the fluid in the transfer case is contaminated with metal particles, and the transfer case must be replaced -- at a cost of $1,672 plus tax. I've been around, driven and worked on cars for nearly 60 years; and I can think of no explanation for failure of a transfer case bearing, sealed inside the case and constantly bathed in lubricant, other than faulty design or a faulty part. It wouldn't have been a big surprise 50 years ago, but it just should not happen these days. I've made that argument to the Ford dealer, and further argued that the transfer case is part of the transmission, and should be covered under Ford's warranty on hybrid components; but they say Ford hasn't done a recall for the problem, and the transfer case is not "specific" to the hybrid system, so there is nothing they can do for me except put in a new one on my dime. Given this and a couple of other engine problems I've had with this car, I've concluded that Ford hasn't perfected its hybrid technology yet, and I'll be shopping other brands next time I go out to buy a car.