Thanks to everyone who commented on this thread. My 2004 Chevrolet 1500 Z71 recently had an encoder problem. Sometimes when I would crank it it would be in 4L or the Neural light would be on letting me know there was a transfer case code. It would always shift back to 2WD with no issues. The problem seemed to get worse anytime the truck was driven over 2 hours straight.
I used this thread to change the encoder motor. It was very easy. It took under an hour and went smoothly. I did need to rotate the transfer case encoder motor shaft a small amount to get the new encoder to line up. I just used a crescent and rag. Otherwise no issues, thanks to your thread. Dealership $800.....do yourself......1 hour.....$260 part.