So, something came loose on my forward drive shaft at the xfer case and beat up the 4wd shift cable a bit. The cable seems in decent shape still, and did not come off, but the PT4WD light comes on when the shifter is in 2wd position, goes to FT when in the PT position, and goes out in the FT position. It still drives normally in all positions, and I cant tell if the xfer case is stuck in the wrong mode, or if its just the light? My mech wants to replace the 4wd shifter @ $299 plus labor. Could it just be a sensor for the light? How do I test what mode it is in? Or should I just open my wallet???

Did you ever figure this out? I have the exact same issue with my 2005 CRD.

Just replaced the transfer case sensor on the top of the transfer case ($30 part). Fixed my problem.
You can reach it from underneath with a pair of channel locks. Just pop the the little plastic connector off,
unscrew and screw the new one in. About a 5 min job.