AWD is good when there is dry and wet/snowy roads. 4HI will give you better traction on snow covered roads.
AWD will tend to send all the power to the wheel that slips the most, just like an open diff.
Quotes from
http://www.toyota-4runner.org/3rd-gen-t4rs/82033-3rd-gen-4runner-buyers-guide.html
-From ’99-’00, the limited changed from a standard transfer case with push button to a differential type transfer case (known as Multi-Mode). This type of transfer case still has a push button to engage the t-case from 2wd to 4. A differential type t-case is different from a standard t-case in that the front and rear drive shafts could rotate independent of each other and avoid binding on high traction surfaces. Until this center differential was locked, the vehicle is essentially in AWD (all wheel drive) and can be driven on dry pavement. Once the center diff is locked, the vehicle is again in true 4x4 and can only be used off road. To lock the T-case, you simply shift from 4Hi to 4Hi(L).
Center diff locker
The Center differential, or transfer case, can also be unlocked/locked. But as we just covered, only ’01-’02 4runners and ’99-’00 limited 4runners had this Multi-mode ability to unlock/lock the center diff.
-On 1999-2000 Limiteds, the locking method was a separate shifting position.
-On all the 2001 & 2002 models, the button to lock/unlock the center diff replaced the button for the discontinued e-locker:
Name: Diff lock button center.jpg Views: 6344 Size: 6.2 KB
In terms of off road ability, the unlock/lock feature on the multi-mode t-case does not add anything. The rear e-locker is the only option above normal 4wd that actually increases off road ability.
How do I choose between these?
-If you live in an area with ice covered winter roads, heavy rain, and you tend to be more of a city driver, the Multi-mode selectable AWD is going to be indispensable to you. It makes icy roads easy to tackle.