Interesting discussion. My manual is not a TE specific manual, its for a 09 4runner and it does address some of the unique features to that model year (i.e. the atrac switch on TE's). Your manual is an 04 manual and it addresses some unique features to that year. Ill get to the differences in a minute. ll repost what came from my manual, just pretend I don't own a TE, just an 09. Ill even remove the bits about the atrac switch and highlight for you why its relevant to the original post. After, I'll add some more stuff from the manual (just an regular ole 09 T4R) that can further clear the issue.
To recap:
From my 09 manual Ch 2-4 Pg. 182 "Active Traction Control System (L4 mode of 4WD models)"(note; not called A-TRAC yet and pertains to any 4wd model)
"System operation"
"Vehicles without the A-TRAC switch Stop the vehicle, shift the shift lever to N and turn the four-wheel
drive control switch to the L4 position. Then the system will automatically activate."
Now, the reason why discussions are great is because it highlights a very important difference between early 4th gens and later models, namely the ability to turn off additional traction features by long-pressing the VSC/TRAC button (the "gray wire mod" for you early 4th gen owners). Maybe Toyota had to separate ATRAC from TRAC in the computer to make this work right, I dunno. But I read your manual and for your truck, you are right, ATRAC is a 2/4HI/LO feature. On later years, ATRAC is 4LO only, as per the definitions (not found in your manual).
Ch. 2-4 pg 188 of my regualar ole 09 manual.
TRAC (Traction Control)
Maintains drive power and prevents the rear wheels (2WD models and H2 mode on Multi-mode 4WD models) or all wheels (4WD models except on L4 mode) from spinning when starting the vehicle or accelerating on slippery roads.
A-TRAC (ActiveTractionControl) for L4 mode on 4WD models
Maintains drive power and prevents the all wheels from spinning when starting the vehicle or accelerating on slippery roads.
So, to answer the OP, per the manual, ATRAC is indeed a 4LO only feature...at least on 09, maybe 08+? For 03-07 it does look like ATRAC is available in 2WD or any 4WD. Why Toyota differentiated between 4HI and LO starting late in the model years is curios. After all, the definition says they do very similar things, except maybe the algorithms for the ABS are a bit more aggressive for the slower wheel speeds found in 4LO, hence a more "active" traction system. And, for the very confusing ATRAC switch, an even more aggressive option for a Trail Edition vehicle. The real questions are what years did the change to 4LO occur and what are the performance differences, if any? KCCO...