Check the super select solenoids. I had the same problem with my pajero/montero io, when I released 4WD from 4H to 2H the two front wheels lights started flashing. They stopped flashing and was solid on when I re-engaged the 4WD (2H to 4H).
My problem was a failure in the 2H solenoid, it was not producing enough vacuum. The problem was intermitent at the begining and then was permanent.
I checked the solenoids in this way:
1) The solenoid that receives the vacuum in the botton is for 2H
2) The solenoid that receives the vacuum in the top is for 4H
3) Both solenoids operate in the same way, they only change in the way they transfering vacuum from top/botton to the exit pipe (2H or 4H). The difference is that one has the vacuum input on the top and the another one in the botton.
4) The default position when you disconnect the electronics is 4WD
5) Try disconnecting the electronics and switching the output pipe between the solenoids. This will put the solenoids on 4WD position and you changed the pipes, so the 4WD should disengage.
4WD should disengage if your 4H solenoid is OK, the ligths should now flash when you change from 2H to 4H because 4WD cannot engage because the pipes are switched. You can also check the vacuum of each solenoid with your finger on each one.
If this doesn't work, try to bypass the solenoids and connect the input vacuum hose to the 2H output pipe. If the lights doesn't turn off in 2H mode it's posible that you have different problem.
Also check this address: http://4wd.blogeasy.com/article.view.run?articleID=318776