I've been having some issues with this as well. This last spring I was cruising country roads and found a spot that definitely required 4wd. I pulled up my 4wd lever and there was no tension on it, and it did not engage the 4wd. So, I crawled under my Jeep (one more reason to be lifted

) and found that the metal loop with rubber bushing (as described) had slipped off of the stem from the t-case shift arm (as described). I slipped it back on and went on my merry way with no 4wd problems for a while. Then it happened again a couple weeks later, so I pulled that bushing out and found that it was destroyed. I looked everywhere for a replacement, and finally resorted to the dealership (who charged me $30 for a piece of rubber the size of a thimble

). That worked for a while too, but just the other day I tried to engage 4wd again and it didn't work. I crawled under the jeep in the snow and slipped it back on, and I don't foresee being in two-wheel drive for a while, but I do need to get this fixed...
Where does the cotter pin go? It doesn't feel like there's enough room on the stem to fit a cotter pin. Can you post a picture?
Is there a bigger issue that is causing it to slip off? I've heard people talk about getting their linkage adjusted. What does that entail?