Does it actually go into 4wd? If you have the manual transfer case, it will engage 4wd at the transfer case, but unless the front axle disconnect engages the passenger side CV, you won't have any power to the front axle. You can test it on jack stands - if you engage 4wd and can spin one front wheel and the other is still, the ADD is disconnected.

I would suspect the switch on the transfer case that tells the ecu that you have shifted into 4wd. Unfortunately, I believe you need to pull the tcase to access it, but I've never had to do the job.

Definitely the type of thing that needs proper diagnostics and not just guessing at it, like I am here. I would speak to the mech and see what his troubleshooting steps were, if he checked the output of the tcase switch at the 4wd ecu connector and it had a good signal, but no output from the ECU to engage the ADD, the diagnosis sounds correct.

Also, the 4wd ECU is pretty easy to get to under the dash, IIRC, and I have never heard of one failing, so they should be plentiful and cheap from scrap yards.

Yes it definitely goes into 4wd.

The part they say that needs to be replaced is #89533-35250. I google that and see a few show up used for about $100. Curiously no new ones showed up in my search.

I'm not going to do the repair myself. I just wanted opinions as to whether this was a possible correct repair.

Have you shop test the Transfer Indicator switches first. (see above)

The MSRP for the ECU is about $350. Hard to see how a $350 part translates to $1200 repair bill.