Not sure if this will apply to our situation, but it does sound similar.
Anyway, the following is a copy and paste of a response that I responded with a while back to another thread. Hope this helps:
It could be one of two scenarios. The only way to find out which sensor is problematic, you need to get a diagnostic test from the dealer. I must warn you that, if they find that you're past the bumper to bumper warranty, then most likely you'll pay for the diagnostic test along with whatever sensor part and labor costs out of your own pocket. Since sensors are considered electronics and are NOT covered under the power/drivetrain warranty. However, if you're within the warranty, you'll be covered.
On the chance you're not covered, you'll still need to find out which sensor. It can either be a speed wheel sensor which is located at the wheel and easily replaceable. Or it could be one of two sensors on the transfer case. If this is the case, your TOD/4wd will not work properly by the display shown (no lights powered to the front wheels applied). They should be able to tell you which sensor it is after the test.
If it happens to be one of the sensors located on the transfer case, then it's either going to be the rear sensor (that senses both rear wheels) or the front sensor (senses both front wheels). It will cost a bundle to have the dealer to purchase and replace the sensor. I forgot what I was quoted but it wasn't cheap.
You can actually refer to the Isuzu parts link on this site and purchase the sensor yourself at a discount. Though both front and rear sensors are issued different part numbers, they are physically identical and have both the same number of wires. The only distinction between the front and rear sensor is (1) single wire which is a different color. All other wires match exactly. My suspicion is that they have this single wire distinction for assembly purposes so that they can diffentiate which sensor to plug the appropriate wire harness to from the TOD.
Anyway, refer to the CD manual from Tone's site and check out the location of the 2 sensors. They are both located in the same area of the transfer case except for the fact that one is for the rear wheels and the other for the front. Also note that one is more difficult to remove than the other because of the tight space. Hope this helps and good luck.
ps. DO NOT DRIVE if your front or rear sensor is completely disconnected as it will confuse the TOD and will kick to 4wd low unexpectedly while your making turns on dry pavement. NOT GOOD.
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