4WD UNIT JUMPS OUT OF HIGH?

Sounds like piston blow by, as the gap increases and diesels have such high compression. When the turbo kicks in, the pressure is restored.

https://www.google.com/search?q=Toyota+Corolla+2+Litre+diesel.+Why+loss+of+power+at+low+revs+when+warm

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There should be a control unit on top of the engine that controls this to keep the engine at a certain temp which runs off the engine block temp sensore. I would try changing the sensors first located on the drivers side front of cylinder head and in the goose neck on top for one of the thermostats.It wouldn't be a bade idea to change the thermostats too at the same time.

GMC and Chevy has issues with the dash controls on 4WD models

P0238 = Turbo/Super charger boost sensor 'A' Circuit High
http://www.dieselplace.com/forum/63-gm-diesel-engines/40-duramax-second-generation-2004-5-2005-lly/153584-need-kinda-quick-help-p0238-code.html

Is the Service 4WD light coming on? Do the light on the 4x4 selector switch indicate the proper selection and are on steady after a few seconds? If there is no Service 4WD light on and the selector switch light are correct, the only place for the problem to be is the Transfer Case. Has the Transfer Case fluid been changed at 50K mile intervals? This is very important.

Check the oil level in the shift on the fly (sotf) part of the axle thats the left of the front one - it holds about 1 pint of gear oil and gets missed at service time .

I'm pretty sure the truck has to be at a complete stop with the transmission in neutral before it will accept your low range input selection. Unlike 4wd high.

I had the same problem with my 98 sierra 4x4. Turned out that the electrical activator on the transfer case was not working. It will still go into 4 low but not 4 high. Replace the electrical switch on the transfer case and it should work again.

I had a very similar problem with my 98 gmc 2500. The 4 low would engage - though the upshifts were erratic, but no 4 high though the light sometimes came on. I changed out the electric shift solenoid or whatever it is called, on the transfer case and it worked fine after that. A fairly simple fix that can be done in 15 minutes. Hope this helps.

Possible oil sending unit problem.