Just discovered that I have the same problem. Has anyone tried using a turbo socket (also known as a twist socket)? Supposedly it's designed for removing rounded bolts.
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Using this method, is there a risk of getting metal particles into the transfer case when you drill it?
Yeah, there's that chance. But if you get it out, all you have to do is spray some wd40 thru the fill hole until it comes out at the bottom. In addition, when you drill the hole, all the metal shavings should be driven out by the drill bit.
WD-40 will not flush all those filings, and drill bits never clear all the metal shavings. WD-40 will also change the viscosity of the gear oil, and may do Bad Things to the seals.
If the plug is frozen, you will break the easy out off. The inside of the Transfer case has all sorts of webbing, and those filings will catch in one or more of those holes.
If you don't have a welder, you can use lots of cleaner, sandpaper, and JB weld a piece of 3/4 x 1/8 steel strap. You can speed the process with a heat gun. The welded rod is still the best solution.
It's just not worth it to get steel filings in your transfer case. Do you really want run the risk of rebuilding it in then next 10,000 miles?