"Normal"? No, but quite possible. Very few owners change the transfer case oil which does degrade and should be done at 50K mile intervals. When the oil gets super hot, and it does get very hot, the seals and gears will start to go bad. This happens a lot when the car is driven hard in slippery conditions. A hole in the transfer case? Wow! Initially, my thought was to remove the rear drive axle from transfer case to rear diff. But in your case, either find a used transfer case and do the labor yourself or send the car to a recycler. If you get a new transfer case, leave the prop shaft in the garage and go with FWD.

Many 2001 AWDs are real cheap because of the tranny problems, like $1,500 or less, even in 'good' condition. I suggest finding a replacement car.
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Keeping it running is better than buying new