Gear oil - it is stated in the owners manual under specifications, as well as in the RAVE (linked below - super useful).
It specifies 75W-90 gear oil for the transfer case, rated at API GL-5 or better.
I’ve used any ATF good for Dexron III in the auto gearbox and haven’t had any issues.
Here’s a link to the repair manual system for the D2, which should give you all the data and repair procedures you’ll ever need:
Where to go to download Rave
Yes, the front driveshaft u joints can and will seize up from exhaust heat baking the grease out of it. Happened on mine before I got it. Put a massive crack in my transmission, and I’m going to need to replace it at some point to stop the leaks. At higher speeds, it will put a hole in the transmission and you’ll need a new one right then. It can also take out the exhaust and wiring in the vicinity.
Good enough, not recommended though - decent junkyard driveshaft
Better - rebuilt it with new greaseable u joints (what I would do)
Best - Tom Woods front shaft