Seems silly, but crawl under there and see if there is something mashed up in the linkage. Also, make sure there isn't any rust impeding the movement from the lever. This happened to me once.. When I was 13, I took the old farm truck mudding in our neighbor's field and got stuck. Dad was pretty pissed, so was the neighbor. I got stuck because it wouldn't go into 4x4. I mashed so much mud up into it, the lever wouldn't fully move.
If that's not it, sounds like a transfer case problem.