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You might try reading the article at www.howstuffworks.com on 4WD systems, recognizing that you have a standard, run of the mill part time 4WD system. In a nutshell, this means that, in 2H, the front drivetrain is completely disconnected from the rear, in 4H the front drivetrain is locked to the rear drivetrain and must spin at the same speed (why 4WD shouldn't be used on high traction surfaces like asphalt and concrete). 4L leaves the front and rear locked, but also provides a significant gear reduction for heavy pulling/slow speed situations.
In addition to the operation of the transfer case, you have freewheeling/locking mechanisms in the front hubs that allow you to disconnect the front drivetrain from the tires when 4WD isn't needed.
One thing i noticed this morning was that I thought I wasn't in 4wd but every time i hit the gas, I heard a thump coming from the (i guess what would be) the drive shaft.
Also, my tranny was making this god awful noise like a loud chatter/vibration and the only time it didn't do this was when i was giving it gas. it made the noise when i was stopped or moving w/o pressing the gas pedal. any idea what that is?
When I finally got it out of 4wd, the tranny noise stopped. (but my 4x4 light was still on. but my hubs were in the free position and the shifter was all the way up towards 2H.