Yea after hours of reading through forums I figured that part out. I opened it up and sure enough it was filthy inside. It's a goner forsure. Should be getting the new actuator soon.
This is exactly whats happening to my 02 Limited. Flashing lights, front driveshaft turning on D but front tires not spinning. I'm waiting on a new oem actuator so I hope that fixes my 4WD like it did with yours.
Glad you solved this! Having same issues here. Hopefully this does the trick for me when I put the new actuator in the front differential. I have an 02 limited and the hose nipple on the actuator broke off. Fingers crossed.