I’m having the exact same issue on my ‘99 Silverado 1500. All the lights are on on the 4x4 switch and it seems to be in limp mode. No codes. I tried replacing the switch and the same issue is still happening. I recently changed the transfer case because the old one was leaking. I’ve replaced the encoder motor as well.
Were you ever able to figure out the issue with yours? I have a feeling the mine is true wiring as well.
Any help would be greatly appreciated.