Background: This is a gen II.5 Montero with 186k miles. I just bought it a few months ago. Came from upscale suburb of DC so the 4WD was probably barely (if ever) used.

Went for a short trip down an unmaintained west virginia 'road' and used 4-LO for the first time this weekend. The 2 front wheel lights on the dash did blink for the first few hundred feet before they stayed lit continuously, but everything worked great after that. When I was done and shifted back into 2WD the lights went off right away. I drove home 70 interstate miles with no problems and then hit some traffic. After some cycles of stopping and inching up a few car lengths at a time, I pull forward slowly and there's a loud grinding noise and shudder from the front end - like something is binding up - and then there's a CLUNK and it smooths out, but the two front 4WD dash lights come on and start blinking . I pulled off to the shoulder, shifted in to 4hi, drove forward a bit and stopped, put back into 2wd and backed up a bit (while reminiscing about my old Gen I's 4WD disengagement procedure). The lights went off when I pulled forward back out onto the road...then I hit some more traffic, and the grinding clunk blinking happened again.

I've been searching the board and already found the very helpful article about the 4WD lights/actuator system, so I know what parts to check. My question is: what is mechanically occurring to cause the noise, and why is it related to stop-and-go traffic situations? My guess would be that the front axle is partially engaging (grinding/shuddering) and then fully engaging (CLUNK) - and then the lights blink because of the discrepancy between the front axle being engaged but the transfer case being in 2HI...does that sound right? Anyone have an idea of why this would occur only in stop-n-go traffic? Any other suggestions would be much appreciated, thanks.