Our platform (GMT360) first shipped for the 2002 model year. We know our 4WD system very well, but unless somebody owned one of yours earlier, we would have no clue. I wondered if you had disconnecting hubs like early Tahoes and Suburbans, but in an exploded diagram at
http://www.compnine.com, I see the designers stuck you with a similar splined disconnect on the passenger side of the intermediate shaft as we have. That implies that the transfer case has disconnect clutches, so the shaft from the transfer case to the front differential should spin very freely in 2WD mode. If it isn't, you need to pull the shaft and see if it's bound up at the front or rear. That will lead you to service or swap out the TC or the diff.
Edit: And of course, we're very jealous you can get 4.56 gears, and a lockrite locker for your front diff. Ours is a new and unique (insane) design with no locker available, and our intermediate shaft goes THROUGH a tube in the oil pan. Weep for us.
