I have a 98 Jimmy with a 3 button 4x4 system. 2Hi, 4Hi, 4Lo. I have identical problem to you. It switches into 4Hi no problem. Switches to 4Lo and back to 4Hi no problem. Will not go back into 2Hi. I hear all the same noises etc. you discribed in your post. What and where is this E1 pin so I can try grounding it and see if it switches.
