and theres no clicking or clunking when you begin to drive? im guessing you tried going reverse then forward? umm other then that im nto mechanically inclined enough to tell you unless i was there taking it apart.
The auto locking hubs have a tendency to give out. You may want to look at replacing the hubs, or having a shop look at them, they're probably your issue.
Don't know much about 1st gens. Is there an actuator that engages the front axle. My 2nd gen is vacuum actuated and after switching the hoses around it came back to life. The actuator is right there once the rock gurad is removed.
The 1st gen's are much more simple... The transfer case engages the driveshaft and front axle, the hubs (auto locking or manual) connect the wheels to the axles.