I just wanted to post a final followup just in case anyone else has this same problem.

Today I unhooked the low range switch on the transfer case to see if it helped the problem. Interestingly enough the LOW RANGE light would still come on and off even with the switch completely unhooked. I followed the wire from the switch and found that a whole bundle of wires had broken off its wire mount and was just resting on the front driveshaft! Every time I had it in 4x4, it would rub and the front driveshaft would burn off the coating. I followed the harness and found it was also the harness going to the transmission itself. There were 4 wires in it which were stripped and being constantly shorted against the front driveshaft and each other as I drove.

I unhooked it all, pulled it under the truck and with the help of black tape and wire ties I got it back into working order. Took it out for a spin and it drives like a new truck! Shifts perfectly every time, which it hasn't done in ages.

Thanks everyone for the help!