One problem related to transfer case has been reported for the 1998 Subaru Impreza. The most recently reported issues are listed below.
Transfer clutch on the powertrain of my 1998 Subaru Impreza bucks and binds in turns, apparently due to the transfer clutch hanging up and staying applied. This has occurred at least since the 50,000 mile mark and continues to date. Despite this problem falling under Subaru's powertrain warranty, two separate Subaru dealers have refused to fix it under warranty, and instead have "added limited slip differential additive" to the differential-a fix I have been told by another Subaru dealer is not an authorized fix for this problem. I am now faced with $900 in repair bills. This problem has been previously reported for 1997 Subaru Imprezas (NHTSA item number sb053575).