Ok so the AWD I have that I am working on right now, I'm trying to figure out why the side to side selection movement is really stiff. I have removed the cables so it is not them. I have sprayed some PB blaster to try to free up the mechanism on the tranny. Almost feels like its something internal. 5 spd btw.

Any idea what could affect this?

Rails or forks. When I changed my center diff, my side to side movement was really stiff as well. Over time it got looser until it was normal again.

Was the transmission rebuilt recently?

No its been sitting for approx 2 years. Engine and tranny are coming out, so I guess I will have to crack it open or see if I can work it some more, perhaps things are dry in there from sitting.

I'm sure that over time it'll lube itself up. I revived a 92 TSi AWD last summer that was sitting since 2001. It had the same problem. After 4 or 5 days, it felt better and better. I daily drove it to work and back before selling it and by that time, it was barely sticky anymore.

I had the same problem after letting mine sit for about 8 months. Like Tim said, it cleared up after about a week of driving.