New parts list
-new encoder motor
-original kick panel transfercase control modual and a junkyard one neither fixed the problem.
-new dash switch (3 button)

With motor running and in neutral push the 4hI button and the 2hi light stays on while the 4hi light blinks a series of times and u can hear the module in the kick panel clicking but it stays in 2hi. Took the battery out and the tray and the vacuum boot seem to all be in tact, no tears. Even pulled the diaphragm back and zip tied and tried it and still just binking. Please help.

 

Swap it out, the top of the transfer case on the drivers side, they are known for failing.

 

Your 2001 3 button 4WD system might not have a vacuum switch on the transfer case. It might be located on the firewall. Looks like this:

Could also be a problem with the 4WD switch, TCCM or encoder motor electrical circuits. The actuator under the battery should have manifold vacuum when the engine is running, and 4WD is selected. If the actuator is getting vacuum in 4WD, there may be a problem with the mechanism that locks the right front axle, (in the front axle housing). Could be a problem with the axle engagement switch, (also in the front axle housing) or the electrical circuits for it.

Raise only the right front wheel off the ground. Engine at idle, trans in park or neutral, select 4WD. The right front wheel should not rotate by hand.

 

My 04 Crew had one. If memory serves me right, only the 4 button had the solenoid on the fire wall.

 

That's thw next thing I wanna try since it's really cheap.