I had this problem some time ago and it "fixed itself" until last night. I needed my 4wd going up a steep gravel driveway and shifted it in. Now I notice, when in 4 high, the 4x4 light in the dash isn't on. When I shift back into 2wd, the 4x4 light comes on. It's completely backwards from what it should be. Anyone have any ideas???

 

Basically this is how your 4WD works:
A synchronizer in the transfer case spins the front driveshaft up to speed, the 4x4 shift lever locks into place and engages a vacuum switch.
At this point vacuum lines swap the High/Low vacuum signals to the vacuum solenoid on the front axle and a vacuum solenoid slides the splined shift collar
When the splines on the two axle stubs align, the collar locks into place. Now that the axle ends are locked together by the shift collar and you have 4WD.

My guess would be you have a vacuum leak somewhere.

 

Thanks for the reply. I took it out on a gravel road and tested it and it seems to be operating in whatever mode I shift to even though the light says the opposite. Is there a chance even with the shift lever in 2wd it can go into 4wd?