Ditto, i have a 04 z71 there is no traction control on these. I am suprised your locker didnt activate. After 1.5 revolutions that rear differential should make a loud clunk noise and then the other rear wheel should start spinning. The z71 has an eaton locker in it from the factory maybe yours is not z71. But this has nothing to do with your transfer case issue but it does show you dont buy a 4x4 without a locker. Your spending a lot of money for a 2 wheel drive system at best when everything is working. With locker at least you will get 3 wheels spinning instead one one front and one rear spinning. i had the dreaded oil pump rub through the case issue and i had to take every piece out of the transfer case…its really not that complicated….nothing like a transmission…i think the transfer case is fine i would proceed with encoder or the front actuator replacement…