Even though the "disco" axle does disconnect one axle, chances are the driveshaft is going to spin in 2wd anyway. My CJ-5s front shaft sometimes turns in 2wd even with the hubs unlocked. There is enough friction drag in the dif spider gears to let the pinion freewheel when the truck is moving. All this means is, even though the front shaft turns, that doesn't mean the truck is in 4WD.
Try putting it in 4wd-hi and slowly turning in a circle on pavement. The front tires should lurch and chirp as you move. If it doesn't, either the t-case is not going into 4wd, or the front axle lock isn't engaging.
-Be careful with this part -
Chock the rear tires. Leave the trans in park. Put the front axle on jack stands, start the engine, put the T-case in 4-hi. Spin one front tire by hand while having someone watch the other tire. It might take 1 or 2 turns of the tire for the t-case and axle disconnect to engage, then there should be a lot of drag, but the tire will still turn. The other tire should spin in the opposite direction. If only one tire moves, the disconect is not working. Also, if the driveshaft will spin like this, 4wd is not engaging
Put the truck in 2Hi and idle down the street at about 5 MPH. Note your engine RPM. Shift into 4Lo and try again. You should see more then double the rpm for the same speed, even if the front axle isn't pulling. If there is no RPM change, the T-case is not going into low range, and probably not shifting into 4wd either.
If the T-case isn't going into 4wd, check your shifter and linkage. if it's the axle disconnect, my advice would be to take the disco motor apart, manualy shift it into 4wd, and leave it that way.
This should narrow down your problem. Hope it helps
