I went outside last night and noticed a big puddle of ATF under the car. I checked the Transmision level and Power Steering level and they are find. What else could it be? Does an 88 use ATF in the Transfer case? It's a 5.0 (302) with a c-6 Tranny.

No, there should be gear oil in the transfer case. Your tranny holds lots of fluid, the exacted amount escapes me at the moment, but u need to run the motor in park for at least 10 min, the best way is when you have been driving it for a little bit. Then leave it running while u check it. Usally the tranny coolent lines are the ones the cause leaks, so check that first.