It's no good just pointing the pinion at the transfer case. The centerline of the pinion should be running parallel to the centerline of the T/case rear output shaft. This allows both UJs to run at the same angle/velocity minimising torsional vibration. This is the most important consideration.
The only time that the pinion should point at the T/case output when the two centerlines are not parallel is if you have a CV joint at one end and a regular UJ at the other. (as on a SYE conversion) In this case the UJ should be as near to being not flexes at possible at normal ride height or you will get vibration in spite of having the CV jointed shaft.
Also check that the UJ on the slip yoke doesn't bind on itself at full drop, as pre '96 XJs had very limited flex on this joint. If this is the case swap in a slip yoke from a YJ rear driveshaft.
