80 Series GXL - loud bang, no drive without center diff lock button pressed?

Hi Guys, Today my wife went to drive off in my 80 series and there was a loud bang/clunk from underneath the vehicle and then it would not drive any more?

After investigating (with the vehicle on the ground) I noticed ithe following:
Firstly with the center diff lock button NOT pressed, transfer in HIGH range:
When I put the vehicle in gear and let the clutch out, there is a notchy/almost grinding noise coming from the front diff when letting the clutch out. There is also a small oil weep from the rear seal of the front diff. The front drive shaft turns, but the wheels do not. (The vehicle does not try to move forward-or reverse).
With the engine off and car in gear, I can turn the front drive shaft quite freely by hand. I cannot turn the rear drive shaft by hand.

Now, with the transfer case in LOW range:
Exactly the same results as above only the noise is less obvious and the drive shaft spinning slower (obviously). The only difference is that the center diff-lock light does not come on (normally does when in LOW) and vehicle does not seem to be in 4WD (still not moving the wheels).

These symptons above seem to suggest that my front diff is stuffed, the part I dont understand is why my rear wheels aren't trying to turn?

Now, with the center diff lock botton PRESSED (either HIGH or LOW range):
The center diff lock light comes on as if the car is in 4WD. However, it seems to drive normally as if the car were NOT in 4WD. For eg. when driving on the bituman I have my full turning circle and the car does not feel like it is screwing the tyres around corners.
When I turn the engine off, I cannot turn the driveshafts by hand.

Can anyone please give me a hand to diagnose the problem??? I am fairly handy with a spanner but I do not know alot about transfer cases and diffs etc.
Please help save my easter...

Vehicle specs:
1990' 80 series GXL
1HZ diesel
Aftermarket Turbo (DTS)
2" OME lift

Regards, Matt.