re: "...I don't know if i would be able to sell it by taking the xc and awd off of the back. I don't want to rip someone off!...."

Well, you know you're going to take a loss, one way or another. You trying to fix it, making it AWD again, is never going to recoup what you spend -- it's money down a hole.

So sell it "as is" (no warranty), but tell prospective buyers (and include a statement in the bill of sale) that it is no longer an AWD vehicle, that it seems to have a defective AWD system (the reason for the disconnection), but that it seems to drive well in plain FWD form. No one can fault you, morally/ethically or legally, for telling the whole truth. Admittedly, you're not going to get anything like what you spent to buy it (even at auction), but you'll be cutting your losses, and that's your only option at this point.

The alternative, trying to fix it, and not doing a 100% perfect job, and then selling it without explaining this history, IS tantamount to being unethical, the very thing you expressed concern for.