The crumpet box is shot, and leaking Gnutella..
OP: have a look see at where the linkage connects to the transfer box, you should be able to grasp that plate, and shift it into 2wd by hand. It helps to have the trans in neutral.
As for adjusting the linkage:
1. Take a spanner and loosen up the bolt on the linkage
2. Shift the plate on the transfercase into 4 low
3. Pull the plastic bezel around the in cab shifter, pull the shift lever all the way back into 4low, and place a 1/8" drill bit in between the shift handle and the shift gate, bungee in place.
4. Crawl back underneath, and use your spanner to tighten the adusting bolt on the shift linkage
5. Remove bungee and drill bit, replace plastic bezel
Should shift like a dream after that