and your sure you put the red and black vac lines back the correct way on the crossmember? I'd try swaping them next

 

I didn't take the lines apart, just took the line brackets off and tied them out of the way. Ilk take some pics tonight and try to get them up. The vacuum head has two sides that are notched and the fitting on the t case has two guide pins that slide into the notches on the vacuum head so I don't think it can go on wrong. Then again I have seen crazier stuff that dont make sense end up working. I never had thar sensor off until this problem happened but its weird that it does go into 4wd and front axle engages but then the 4wd light goes off and opposite when in 2wd

 

Sounds good ... your problem lies in the vac lines I've done it before myself. Normally I put that vac head on wrong

 

Sorry didnt get a pic but also when in 2h the front shaft should turn freely and it doesnt, its got me stumped

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Well I ended up over trouble shooting this one just like everything else. I guess when I moved the steel lines out of the way I pinched the one that connects to the black vaccuum line. Replaced it and everything works good. Thanks guys and sorry for wasting your time.