it was in 2wd but the vacuum lines were broken. I have it all together now and I got the 4wd hubs to unlock! I tried it in the mud by our house, I had the kid watch to make sure. It started out in 4wd but then I switched it to 4 low, spun the tires a bit then switched it to 2 wd. It worked, It is all back in working order now.
BTW how do you put gear oil in the transfer case? I drained it to see if there was metal in there, there was none but I have to refill it and the manual doesnt really show how.

Havent done on ours yet but usually a good idea to break loose the fill plug first....but u should just pull the fill plug and fill until its almost level with hole....feel with your finger...holds 1.3 litres or 1.35 qts of 75/90 gl5 gear oil

and the dealership told you wrong...youve been driving with your hubs engaged but have not been driving in 4wd if your lever was in 2wd...as stated by someone earlier all this did was affect your gas mileage no damage...i usually leave my manual warns engaged for most of the winter here so i have 4wd with the throw of a lever

I have the warn auto hubs and they engage when vac is present they have to have vac to overcome spring pressure to keep them engaged (anybody want to trade for some manuals)

Bingocouple,

If it was in 2WD on the transfer case you were NOT in 4WD. You simply had the front wheels connected to the front diff, but the diff was freewheeling with no drive going to it from the transfer case.

Stop wasting time and money on the vacuum hubs. Even when set up correctly THEY DO NOT WORK RELIABLY. The seals get cold, go hard, leak, and you end up on the side of the road with no 4WD or end up into a tree. This is a safety issue. $150 and 12 bolts/20 minutes of your time to fix it ONCE AND FOR ALL is cheap insurance.

You are getting the (potentially expensive) runaround from your dealer.