under high loads the plastic housing flexes - pushing the pinion gear away from the ring gear, and it skips a tooth eventually causin complete failure. it sounds as if you have ground some/all of the teeth down and when under no load it can spin the ring gear - which is why 4wd appears to work in the air - but as soon as load is applied the pinion skips over, grinding itself more, making a popping or clicking noise. take it out now and try to save what you can. anytime you hear a popping sound its time to get intimate with your diffs. usually accompanied by a loss of 4wd or acceleration.
new pinion/spur is like 10$ i believe, buy a few spares. if you are racing id recommend checking them before every race.
you can prolong the life by using shims much in the way they do with 1:1 diffs in real cars. when i set up my diffs it took a few hours (1/8 buggy diffs).
basically you take the housing, install the ring gear on the diff carrier, then the bearings and the outdrives. place into the housing and add shims to both sides until you get almost no slop, and just a tick of left-right movement. then move the shims you placed between the bearings and the ring gear diff carrier so the ring gear will be as close as possible to the pinion.
install pinion and bearingsin the housing. check for free rotation of pinion, if binding move ring gear away from pinion by moving shims. once you have free movement of pinion input, add shims in between the pinion and first bearing. move the pinion as far up against the ring gear as possible with free movement. you should be able to move the ring gear/diff case back and forth just a tick, the pinion should move back and forth just a click and it should all spin freely through out the range of movement. without all too much slop. this takes forever since its a trial n error process, and may not be worth doing for a 10$ gearset but my buggy diffs are expensive.
are you running the 2.5 still? or other motor