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Can't be to sure with yours. It maybe the switch. On my 2002, I found I had a Transfer Case Control Module issue. Shopped around and found one on Amazon for half the price the local box stores wanted. I would Google this before starting to buy a bunch of parts.
these damn things do this all the time, my 03 ? you cant count on it to work any day of the week ! you just get lucky and it works. I get all lights flashing, i get the nuetral light on yet it is in 2 hi. I'm tired of all the codes and replacing parts, 700.00 dollars later and still the same. I just drive it and it fixes itself in a day, maybe next time i start truck. It worked the best when i sealed all the electrical plugs in moisture proof wrapping,but a few months later and its a guess game again so i just drive it !
you may have a broken transfer box or a damaged locking hub on the wheels that arent used in 4x4 mode, i.e. if your car is FWD unless its in 4-low, check the rear locking hubs for failure. Other wise it sounds like a transmission fault in the aforementioned transfer box or differential.
its a possibility that the transfer case might be going out or the fluids in it are bad sometimes after alot of mileage the tranfer case will slip or stick
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