Well after replacing the transfer case shift motor with a new one, per the service bulletin (I was experiencing symptoms identical to it [the A4WD sometimes stays locked into gear with random 4x4 light flashes and beeps from the gauge cluster]).
Have also replaced both hall sensors. The 4x4 light has now gone away unless I shift into gear for most of the time. After sitting all night, and starting the truck up, it cannot turn because it's partially stuck in 4x4. Drive a few hundred feet and it starts to clear up for the most part.
I was diagnosing this as an issue with the IWE or vacuum solenoid system. My literature doesn't say that the system was removed, although I'm inclined to believe you because I cannot find the solenoids.
Do you have a possible lead for me to go on?