My thought is to remove the knot on the back completely and just have a knob the correct height and width for that slot on the transfer case welded to make that adjustment therefore removing the night to muffler/exhaust rubbing issueThe problem with the transfer case shift linkage is the mounting location of the pin it pivots on. Take a look at the bracket it is mounted to and see about raising it the required amount.
The nub on the rod the rides in the slot is actually a pressed in piece in the shift arm. That bolt head is going to hit your exhaust pipe when raised if not replaced. Here is what the factory one looks like:
View attachment 3048201