Oh jeez...who told you Trac-Lok is a full locker?
Anyways, its a limited slip. It requires a special fluid and/or additive for it to work properly. They do wear out over time, and is totally rebuildable by a $60 kit (replaces clutch disks, similar to whats in an auto tranny).
To check for operation, jack up both back wheels, put the tranny in neutral and rotate one tire. If it's working, the other will rotate the same direction.
Driving in 4wd on dry pavement is never a good idea, but not for the reason you think (bad for transfer case). Remember, the truck sends power to the rear wheels all the time, regardless of position. 4wd, 2wd...doesn't matter. Trac-Lok works all the time.
You probably just need a rebuild.