2wd to 4wd to 2wd issue
 

I've been searching the site for a similar problem but I haven't had any luck. Sometimes when I start up the rig the 4wd switch on the dash (4 button) is in 2wd. On its own it will shift into 4 lo. When I push the 2wd button it blinks but sometimes stays in 4 lo. If I push the auto button the auto light comes on steady. Other times it goes back to 4 lo. Sometimes when I start up the rig it's in 4 lo when it was in 2wd after parking and shutting off the engine. I've checked all the vacuum hoses which I replaced this last summer using Christines thread and I don't find any issues. Possibly an erratic 4 button switch?

Might be worth it to check the switch out. Or maybe unplug it completely and see how it acts

If you are lucky, maybe find one in a junkyard for cheap, and see if the behavior persists. If your junkyards are like mine, though, they've all been long since picked up lol

If I unplug it will it stay in 2wd?

It should. That's how my 95 works. Not sure about the later ones with auto 4wd

Same on my 98 Blazer, if you unplug the 4x4 switch it should stay in whatever range you had it on when it was unplugged... But like cleburne red said, mine is also the 3 button switch so I have no real info on the 4 button setup... I would think though if it keeps jumping around while unplugged you might want too call a priest too see if it is possessed :)

Is it really in 4WD-lo when the 4WD-lo light is on steady? Encoder motor has a position sensor that the TCCM reads electronically and then illuminates the appropriate light in the selection switch. Sounds to me like the TCCM is getting the wrong info from the encoder motor, unless it is really in 4Lo. Probably encoder motor issue, but could be TCCM interpreting wrong. Only thing it is highly doubtful to be is the selection switch (which just houses the little lights in the buttons that the TCCM operates)

It hasn't shown up again, but now when selecting 4 hi and putting it in D or R I can hear the shift take place. When I press on the gas pedal nothing happens at first and then it bangs and starts moving. Wish I had a garage....

How long has it been since you checked/changed your differential fluid? Just a thought...

Don't think diff oil would make a difference. The rear end doesn't know or care what the transmission is in, only if the driveshaft is turning