I had the same problem- the 4wd did engage, but the light did'nt come on. A few weeks later, I put it in 4wd and the light worked. I agree it's electrical- I took off fast on a snow-covered (deserted) road when the light failed just to make sure.
I could'nt care less if the light works or not,now that it's not under warranty anymore-the handle position kind of gives it away. And if you forget it's engaged,the first tight turn on a dry road will remind you.
. 2005 Unlimited TJ - Patriot Blue
. Mods: Pine Tree Air Freshener hanging on mirror