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Having a problem with our NP208. I have little experience with transfer cases.
The shifter moves between all gears as it should however it will not engage 2wd. All others are working properly. Hubs are free. Transfer case was rebuilt about 10k miles ago. I believe the fluid level is full, does not leak. Always shifted beautifully until recently. Truck has not been driven in about 10 years, but regularly moved.
There are nylon fingers on the shift forks, and when they wear out it doesn't shift as it should. I'm guessing you have one/two worn out are it isn't moving it as far as it should.