There are several sensors located on t-case which monitor current state total of five if I'm not mistaken: is 2WD engaged, is 4WD engaged, is 4LLc engaged, is center diff locked, is 4H engaged. Most likely one of those gone bad. Prob one responsible for 4LLc but can't be sure. So ECU just leaves it in one position. I've heard of those sensors suffering from corrosion in heavily salted roads environment, in Russia for example. Of course it could be faulty actuator but sensor is more likely. Blinking center diff light is equivalent of check engine like but for t-case. You can read fault codes using MTU scanner used for other engine/transmission codes.

Where are you located?