4 wheel drive question

I have a 2003 Z71, this morning I noticed my 4 wheel drive was lit up in the Neutral position. I tried to put it into 2 hi and it blinked for about a minute then went back to the red neutral light. Same with 4 hi 4 low and auto 4 wheel. The only position that will stay lit is the neutral position. How did it get there and why? What are the possible problems, anyone see this before?
Thanks in advance for your help.

I'm guessing it's not really in neutral but the indicator light says it is?

Try turning the ignition to RUN (don't crank it) and put the transmission in neutral. Then select 2Hi and see if it changes. If so, then crank and put into gear. If the transfer case is actually in neutral, that's how you'd get it out of neutral.