Update: Stopped by again to discuss the fact the speed sensor was working on the old transfer case and I was having issues with needing to buy a new one because now of a sudden it stopped working. He told me it was throwing a P0722 error code. Which I just looked up:
Output Shaft Sensor Circuit No Signal
(DTC P0722 Transmission Output Speed Sensor (OSS) Low Input) 7A1-48
I'm beginning to think he simply forgot to plug in the OSS as shown on page 7A-44. I think this is the sensor from the ebay link above. I couldn't find it on any of the schematics.