You've got a 2002 so you may or may not have a CAD. If you have a CAD, I believe the switch for the 4wd light is integral to the CAD housing thus reflecting that the CAD has engaged. Thus you say 4wd is good, and the Tcase is engaged, but you may not have drive power to the front wheels.
I don't know where the light is driven from on a non-CAD axle - probably from inside the Tcase - maybe where the CAD vacuum switch goes? But if it is on in lo and not hi, then I suspect something is not engaging properly.