I have an 88 with auto trans also. The light is activated by a simple switch on the transfercase, so I wouldn't use that as any indicator of whether or not your transfer case is turning the front shaft. The linkage that connects the lever in the cab and the transfer case is all over the place under the truck. Check to make sure it's tight and a moving correctly. The lower pivot for this thing is easily bent/mangled if you catch it on something. My lower pivot got bashed while wheeling and it would not go into 4x mode at all until I repaired it. There is no vaccuum stuff on the transfer case it is all mechanical.