Craig it sounds to me like the big problem is the lift kit and huge tires. Any time a truck is lifted you have to be sure and adjust the pinion angle or it'll reek havoc on the driveline. Huge tires that weigh 3 times what a normal tire and rim weigh put a big strain on the driveline also.
So your saying your Dakota is a all wheel drive? I have an 02 and never knew that was an option. If that's what your saying my guess is trying to use a std. case will cause problems with the computer. Wouldn't even have a guess on how to address it. If it were mine I'd stick with a AWD case and fix what's causing the problem because most likely even a std. transfer case won't live since there's probably something else causing the failures