Yes Outback, that's what we was trying to discover, if the props are moving or not. As ther lady discribed a "bang" the thinking was of something snapping, likely choice was a halftshaft.
As it is, it sounds like all the axles are still connected to the props and the hand handbrake still holds the car.
So it isn't a simple matter of a halfshaft failure, but as it drives in DiffLock, the whole transfer box can't be knackered.(if the chain snaps on a Borg Warner, it won't go anywhere)
Once the centre Diff has been locked and isn't able to slip it looks like it's driving the front wheels from the info given.
If we can take the above info as correct, it's difficult to tell without seeing the car ones self, I myself would tend to believe the problem was somewhere between the centre Diff and the rear prop, mainly the rear output shaft.
If one would want to check this, remove the rear prop, put the car in gear, in Difflock and try turning the handbrake drum it should try and turn the internals in the box, one could also remove the front prop and try turning the front output flange to see if it does the same.
If it is the splined rear output shaft, it won't turn try and turn the box.
It might be possible it repair it, and do it while it's still in the car, instead of scrapping the whole box as it might have been implied by others.