The truck in question is a 2000 f150 4.6 with the M5OD transmission, and manual shift transfercase. I tried to shift into 4 high the other day, could not get it to engage, same was the case with 4 low. Since the first occurance it will grab 4 high about 50% of the time, but both the 4x4 light, and 4 low light come on. Does not matter whether its in 4 high or low, the 4 low light is on. Now if I have the truck in neutral, and put it into 4 high, the front driveshaft does lock up. If I put it into neutral on the tcase, it spins freely, and will lock up again while in 4 low. I've checked the vacuum to the front axle, and its good. Also with the engine running, in neutral, and 4 high, I am unable to move the front solenoid(checking for weak solenoid). Not quite sure as what to check next.

I replaced the clutch earlier this year, and had no issues with the 4wd operation before hand. And with it being a manual shift transfer case, it should not have anything to due with the removal on the clutch replacement anyways.

 

I also have the Manuel transfer case, the transfer case is definatly engaging fine so it as to be the actuator failing on the front different.

 

Update- I'm beginning to think that it does have something to do with the front diff. It will shift fine into 4wd high(still with the low light on). But if I'm driving in 2wd, long enough to get everything warmed up, I am unable to get into 4wd high or low. I'm going to check the actuator on the front diff and go from there.

 

baticus,
I had same exact symptoms and went nuts looking for the problem. Turns out it was the switch in the transfercase that tells the computer what range you are in. Part #4L3Z7E440AB... should be about $20-$30. There are a few substitutions and it will come up sometimes as "oil switch" but will be correct. I forget what the actual part # was on the box or if that was the # I ordered, but it was a perfect replacement...4x4 engages like new. Sorry I was a week late on this...let me know if this was it...LGJ2