So recently purchased a 2500hd 8.1 Allison, after selling a 1500 with a the 5.3, so I know my way around these trucks pretty well. I knowingly purchased the truck with the "service 4wd" light on.
My old truck had this problem and it was low Tcase fluid. Tried that one on this one,(fluid was BLACK) no dice light is still on. I also got a switch from a junkyard but it had the Auto 4wd button (2500hd do not have auto) all the plugs were the same and it didn't work either way. A friend has an '04 i believe 2500hd we tried his switch in my truck (the bottom plug on that switch seems to be reversed from mine, so maybe they aren't compatible?) but again that switch didn't work.
What's the next best guess? I have access to a snap-on scanner but it doesn't seem to be able to communicate with the transfer case's error system.