MY 03 MONTERO NOT A SPORT . THE 4 WHEEL DRIVE

Sounds like a U joint or CV joint .
The transfor case is driven by a drive shaft but if not engaged in 4 wheel it dosn't turn .
If we are talking 4 wheel drive witch it must be to have a transffer case in the first place look at the main drive shaft thats what is wrong U JOINT

AT PARTS STORE O DEALER

well first you have to find out why it is low but it also needs to be vaccumed down before charging best left to shop with proper equipment

There should be a second shift knob for 2-wheel to 4-wheel drive, also front axel will have differential with driveshaft from transfercase.

Tom

the smell of trans fluid indicates that it's overheating, either needs changing, if your lucky, or a more involve drepair , get the OBD codes read

Hi, You will need to take to mitsubishi dealer and have them scan your diagnostics. But this is a common thing in montero's and it sounds like o ring (which is plastic) in transfer case has busted. As long as it switches in and out of 4 wheel drive it is ok to drive. If it doesn't, dont drive it...it could cause alot of damage.

position switch stock remove and check operation by pressing contact in and out set gear leaver in 2h position and reinstall

I had this problem on my 1995 Montero. The 4-wheel-drive indicator lights wouldn't stop blinking when I switched from 4-wheel drive to 2-wheel drive. It turns out that I had a slow leak in one of the front tires. After I fixed the leak and made sure the pressure was the same in both front tires, the problem went away. 
This made sense to me because if one tire is much lower in pressure, it's closer to the ground, i.e. has a smaller radius, and therefore rotates more quickly. The manual says to drive in a straight line when disengaging 4-wheel drive but with the lower tire pressure on one side it was the equivalent of driving in a circle. 
You could try checking your tire pressures and see if that makes a difference. Hope this helps. 

This was a weakness of the Montero Sport models. If you google Montero Sport 4WD light flashing you will find lots of information. The best troubleshooting article I have found is here: http://4wd.blogeasy.com/article.view.run?articleID=318776 This article is about the Pajero, but the Montero Sport uses the same platform so this article applies.

The Montero Sport uses several switches and vacuum modules to put the system in and out of 4WD. If any of these malfunction, the light may flash continuously, flash intermittently, fail to come on, and it can trigger the anti-lock brake light to come on. In brief, if the 4WD shift lever is engaged, but the transfer case doesn't engage, the sensors show a mismatch and will cause the light to act funny including triggering the vehicle's anti-lock break light. These SUV's need to be shifted into 4WD regularly to keep the switches and mechanisms working correctly.

Try this before you even think about a visit to the $$$$$ Mitsubishi Dealer:
Shift the 4WD lever between 4WD High, Low and 2WD at least 100 times. Often, this will free the mechanisms and resolve the problem. It worked for me after three years of trying everything else including the dealer replacing switches, etc. If this does fix it for you, just be sure to shift the vehicle in and out of 4WD several times at least one a week and this will keep the mechanisms lubricated and functioning correctly. If that doesn't work, try the above link (article). Good luck!

Jeff

I had the same problem as described here ... quoted "sometimes flashing quickly, slowly, or sometimes turning off. The antilock brake light has also come on several times."

and the dealership told me that the electrical conector that goes externally to the gear drive is getting dirty with oil .... two times I sent the car and they told me the same and solved it ... no charges at least but I having the same problem again ... I really want to know where is that electrical conector just to clean it up or put something that avoid dirty or oil get in it again ...