I wish people would remember to state year etc. info. Anyway, I see from your profile that it's a '90, so the answer is yes, it could be working in hi but not lo, or working intermittently, because the transfer case has a vacuum switch that controls the vacuum actuated front axle disconnect. If that switch is bad it might fail to connect the axle, or if other parts of the system are bad, it might fail to connect. However, usually when this happens the 4WD light will also go off, because it too is triggered by vacuum from the axle shift motor and won't light until it's successfully engaged. The transfer case itself will also not engage in low range unless the linkage is adjusted properly, but may still work in high. Of course there's also the possibility that the transfer case is toasted, but I'd put that at the end of the list.
First thing I'd do is get out on some loose gravel or sand and see if it really is not working in low but is working in high. Then start with a check of all the vacuum lines, and of the linkage adjustment.
edit....went out to plow snow, forgot to proofreeeed
