i know that the transfer case switch motor can malfunction and not lock in the transfer case, but usually when that happens the dash lights dont come on. And you are right, if you unplugged the vacuum lines at the hubs and plugged them then the hubs will lock hence when your switch your 4WD on you should be in 4WD. What might be happening is that your transfer case switch motor is partially working (you hearing the click) to the point where it trips the dash light but isnt engageing the transfer case fully. Just a thought. I havent really seen this before but it is possible. Or (not very likely) your IWE hubs are stuck in the unengaged position (no matter if they have vacuum or not) and your transfer case is woorking correctly. Not sure how likely that is but im sure its possible. You need to get a vacuum guage and check the IWEs. Jack the front of your truck up and hook the vacuum tester to the large vacuum port on the IWE, spin the wheel without vacuum applied, the wheel and axle for that side should spin. Now apply vacuum, at least 10 (whatever the measurement is) and see if it holds, and then spin the tire. The vacuum you applied is like the vacuum your truck applies, it should release the IWE and when you spin the tire again just the wheel should spin, not the axle. If those tests conclude like that after testing both sides then your problem isnt a IWE. You could then check all the vacuum likes and check valves like in the my first post, and if they all check out fine, i would try a new transfer case switch.

Or what you could do is go get a new transfer case switch motor, put it on, test it, if it fixes your problem your good, if not, pull the new switch motor off clean it up and return it. Then focus on the vacuum side of the system.