Fix the vacuum lines, that will likely take care of the light flickering.

 

Even on dry pavement there shouldn't be any abnormal noises. Yes the wheel will jerk strongly but if there's noise, something is broken.

I guess I was lucky in growing up as I knew when I bought my truck at 23 how part-time 4wd works. I do remember teaching a friend who was 50 why his brand new cheby jerked while in 4wd. He thought it was broken, lol.

 

My guess would be the chain in the t-case is stretched, and under heavy load, slips on the gears......

 

C12creed, with those lines broken you will still get the low/high range feel or 4wd when you shift the transfer case. However, the front passenger side axle shaft will not engage thus, no 4x4. You can easily fix the broken lines by finding some rubber tubing with the correct ID to fit tightly over the damaged sections. Now would be a good time to trace ALL the 4wd vacuum lines from the axle to the t-case and then from the t-case to the engine. Sliding the replacement rubber hose over any damaged sections.

If you have the cash for it this is the best route to take. It gets rid of the failure prone vacuum stuff that you are having issue with now and replaces it will a fool proof cable actuator.
http://4x4posi-lok.com/app_dodge.html