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You check the vac lines connected to the knuckle?
They're known to leak on these trucks and if that happens the switch will not engage the 4x4 because the hubs will not be activated. if they have to be locked manually for the switch to work I'd check there.
If they are bad I recommend checking out dieselsite.com
They have some nice replacement ones
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2002 F-350 Crew Cab Lariat 4x4 7.3L Auto SRW
AFE Stage II Intake, AFE 4" Turbo-Back Exhaust, CCV Mod, Zoodad Mod, Pre-pump Mod, Flex-A-Lite Tranny Cooler, Draw-Tite Activator II Trailer Brake Control, IC Foil Wrap Delete, 203° Thermostat, Ford reman. Turbo, Fleetrite HD ELC, Rotella 5w-40 Synthetic, 4300K 35Watt dual beam HIDs, DB High-Torque Starter, Isspro EV gauges (trans,boost,pyro), Dp-Tuner F5
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