A small transfer case drop is harmless for a smaller lift but what you really need to look into is a slip yoke eliminator (SYE) for your transfer case. That will prevent your driveshaft from being pulled out when your rear axle droops and prevents the DS from slamming into the T case as the axle moves up. The slip joint is moved to the middle of the DS. Installing a SYE will require a new DS made which you can get custom built for your lift and application. I had a 1” t case drop on my YJ with a 4” lift and never pulled out the DS. Probably got lucky.
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