Yes the splines must engage for the pump to work. Make sure your case halves are firmly mated together before moving forward. After you get your issues resolved, a word of caution is in order; double and triple check that your oil pump pickup tube is firmly seated in the orifice before installing the tail housing. If it's not, you'll burn the transfer case up in short fashion and won't know it's coming until the damage is already done.
FWIW, I used the JB Conversions kit in my Wranger and it converted the speedo drive to the magnetic sensor (sorry, I don't know the proper name for it). I read the directions and if I am remembering correctly, it stated that it was calibrated to the shortest available tire from the factory (215/75r15 IIRC) with the lowest gear ratio available from the factory (4:10). This would make the speedo read way fast, so when larger tires are installed it will drop the reading back a bit closer to being correct. I run 32x11.50-15's w/4:56 gears (REALLY fun from red light to red light with the 4.0 & 5 speed :roflmao: ) and it's only about 10-15% off. Certainly not enough for me to worry about since I don't drive it all that often, but if it concerns you, as was mentioned earlier, my kit suggested the Dakota Digital speedo calibrator to dial it in.
