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Assuming that this is an electric shift...
Engine running, on the brake pedal, be below 5mph (preferably at a dead stop), and in neutral is what you need to shift ranges.
If 4hi is working, then I'd suspect the electric shift motor is fine. The gearbox on the shift motor (part of the motor assembly) might have a stripped gear once it gets past the 4hi position though too.
It's possible that the range shift fork is broken...but that also might allow it to slip into neutral. Another possibility would be the shifting cam shaft inside the transfer case.
(Note: there's no neutral position on the switch, but the position is still there in the transfer case mechanicals).
Pull the shift motor off of the back of the case, you'll see the shifting cam shaft that it turns. 2hi, 4hi, and 4lo are marked on the case. With the truck on jackstands so all four wheels are off the ground see if you can turn the shaft to shift through all the positions. If you can manually shift it into each position, then I'd check the motor out. If it doesn't shift properly manually then the problem is inside the case.
To test the motor, you can have someone shift the selector switch through the positions with the motor disconnected from the transfer case.
I understand that if you haven't bought the truck yet, this might be kinda hard to do. See if you can talk the owner into getting it checked out at a shop...or let you take the truck to a shop to get it diagnosed. Or if it's a dealer then they should check it before you buy.
A junkyard shift motor should be in the $50-100 range...I haven't priced a new one.
A junkyard transfer case should be somewhere around $300-600. A basic set of bearings & seals, oil pump, and new chain cost me about $250 a couple weeks ago for my '97...any other parts like the shift fork or cam will be extra.
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