This member sent me these questions via PM, but I am putting my answers here for the benefit of others.
That's it. It is on the passenger side of the front axle. Do a search for the "No X4" thread. Lots of good info and pics. There could be a number of reasons why the light does not come on, including as simple as a bad light switch.

That rubber boot with the 4 lines connects directly to the switch.

Anything is possible with this crappy vacuum system. Failure of any aspect will cause the system to malfunction.

Despite what some think, this is a shift-on-the-fly system. You can shift from 2X4 hi to 4X4 hi at any speed below 55mph while in gear. Shifting into 4X4 Lo should still be done at a stop or very low speed because of the change in gearing. The secret is to shift quickly and avoid pausing in N (on the transfer case) for any length of time. I find it easier to shift into Lo with the engine off. If you were already in 4 Hi then the front axle should already be engaged (no need to be rolling), so all you're doing is changing the gear in the transfer case.

 

Put it in the FAQ.

 

What switch is part of the circuit that handles the task of illuminating the dash light? Is it the vacuum switch at the tranny or, is there a mechanical contact switch at the shift lever etc?

What prevents it from engaging in or disengaging from 4WD mode? Does this system rely solely on vacuum to make it work? Is this the common complaint that I keep reading about? So, if the vacuum / CAD is not working, does this mean that the system will not engage into 4WD mode thus not illuminating the light?

 

It was also asked if the switch on the transfer case controls the 4WD light on the dash. The answer is no. The transfer case switch controls vacuum going to/from the CAD and is a mechanical switch. The dash light is turned on by an electrical switch mounted on the CAD. A plunger inside the CAD pushes on it when the axle is properly engaged thereby turning on the light. The vacuum switch can be working and the light may still not come on if the switch is defective or the wiring to it damaged. But if the vacuum switch is malfunctioning the light will not work, either, because the CAD will not be engaging. In other words, the light may not work even though you have 4WD, but if 4WD is not working neither will the light.

And yes, the system is entirely dependent upon engine vacuum to engage/disengage the front axle. Output to the front driveshaft is mechanical and completed by shifting the transfer case, but unless the CAD is functioning that driveshaft output will not reach the front wheels. That's why many of us have ditched the CAD system in favor of the Posi-Lock system. This is a cable that eliminates the vacuum system completely and gives you positive shifting of the axle components so you always know you're in 4WD. It also gives you a 2WD Lo setting that is usefull for situations where you need a lower gear, but not 4WD.

 

Ok, now I know how it works. There's two modes for failure to illuminate the light. I've got it. Now to check it out and see WTF is up. Thank you Miami for all the info.