The interior switch doesn't lock the hubs, but the 4X4 light comes on.

 

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I recently repaced my F150 1995 automatic hub-locks with manual lock-hubs and a conversion kit because of the same problem. It sounds like all is well but the hubs may not be engaging. Maybe remove, clean and a lite lube may fix your hubs, unless they come apart like mine did.

 

Trucks built after 96 don't have locking hubs. Since they are IFS, they use an axle disconnect. Basically it's a sliding collar on the passenger side front axle that connects two shafts inside the housing. If the 4X4 light comes on, then there's a real good chance it's working. but if you say it's not, the vaccum motor could be out. I'm not sure what makes the light come on, if it's a switch in the transfer case or a switch somewhere in the vacuum line that actuates it. If anything is wrong I would bet on the vaccum motor being out, or a vaccum line off somewhere. Do you have the switch on the dash, or the lever on the floor for the transfer case?